3 Types of Group Life Insurance

With group life insurance, a single contract (master plan policy) covers an entire group of people. The employer or an entity such as a labor union is the policyholder, and the employees or members of the group are the ones covered by the group policy. Such coverage is often part of an employee benefits package, with the employer picking up the tab. There are three basic types of group life insurance: group term life, group universal life and variable group universal life.

1. Group Term Life

The most common form of group life insurance is group term life. This is typically provided to the employees by the employer in the form of a 1-year annually renewable term insurance policy. When the policy is up for renewal, both the insurance company and the employer can determine whether to continue. Rates can also increase upon policy renewal.

Costs of the policy are mostly or totally paid for by the employer. A typical coverage amount for group term life policies is equal to 1 or 2 times an employee’s annual salary. Often, additional coverage in larger amounts than the master contract can be purchased by the employee via payroll deductions.

Group term life itself has three types:

  • Basic group term lifeThis is the most typical coverage, providing basic coverage and often paid for by the employer. The premiums (up to $50,000) paid for by the employer are considered to be an employee income tax-free benefit.
  • Supplemental group term lifeOften offered by employers in conjunction with a basic group term life policy, this type of coverage provides the flexibility for the employee to purchase additional amounts of coverage. The employee chooses the type and amount of coverage to suit personal needs and circumstances and pays the cost for the premiums.
  • Portable term lifeEmployees who lose the employer’s group eligibility (they either leave the group or retire) can take this coverage with them to continue their insurance protection generally until they reach age 70. They make their payments directly to the insurer, many times through electronic funds transfers.
2. Group Universal Life

This type of group life insurance policy combines the benefits of term life and whole life insurance. You can choose to pay the life insurance premium
only or also make payments that build cash value (above the cost of the premium). The advantages include affordable group insurance rates and simplified underwriting, along with the potential for cash accumulation and portability. Features of this type of group insurance include

  • group buying power resulting in more affordable premiums,
  • an optional cash value account,
  • coverage that can be extended to age 100 and
  • dependent coverage that’s generally available as a rider.
3. Variable Group Universal Life

Often used in executive benefit plans or to fund retiree life insurance, variable group universal life provides flexible life insurance, a guaranteed account and optional sub-account investment choices. Features include

  • affordable premiums due to group buying power,
  • an investment option (for tax-deferred accumulation),
  • coverage that can be extended to age 99,
  • optional dependent coverage available as a rider and
  • investment account options (that cover a wide range of investment styles and risks).
This type of group life insurance has expenses and fees, such as mortality and expense charges, fund expenses, and management and distribution fees.
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