Group life insurance, also called group term life insurance, sounds favorable when your employer offers it at low or no cost. Employers offer this as an employee benefit. You can take advantage, but it’s good for you to understand group life insurance in the workplace.
Over 60% of NGO employees have access to insurance provided by their company. This is because group insurance has a low cost, and any employee can access it. Read on to understand what group life insurance is, what types of coverage are available, what the demerits of life insurance are, and who applies as a beneficiary.
What Is Group Life Insurance in the Workplace?
Group life insurance provides insurance coverage to a group of people under a participating employer or organization. It allows you to choose a loved one as your beneficiary. You can access this insurance through your employer, church, an association, or as a veteran who served in the armed forces.
The cost of this insurance and its premiums are low, and it can provide coverage of $50,000 or of the sum of one to two times your salary.
Types of Group Insurance Coverage
- Basic Group Life Insurance: You will incur no cost for this coverage, and it provides more protection for your family.
- Supplemental Group Insurance: For this insurance, you will purchase additional coverage through your employer.
Types of Group Life Insurance Policies
Besides term life insurance, types of group life insurance include whole life insurance, universal life insurance, and basic group life AD&D (accidental death and dismemberment insurance). Make sure you understand what kind of insurance is provided through your group life insurance policy.
Group Life insurance after Leaving the Job
Group life insurance is renewable yearly; it will expire a year after you leave your employment.
The state of your health and policy conditions will determine whether you continue with the insurance after leaving the job. As you consider continuing with the insurance, compare other insurers and their rates if you are young and healthy.
When you leave, some employers give you a choice between portability or conversion.
- Life Insurance Portability: This allows you to continue having access to your coverage in the group insurance. Your employee caters to the benefit, but the premiums are yours to pay.
- Life Insurance Conversion: This simply converts the policy from group to individual life insurance. You become the policyholder and manage payment on your own.
If you are not as healthy, maintaining permanent group insurance after you leave can be expensive. Understand the terms of the contract and the cash value of your policy.
Converting or porting the insurance does not require a medical exam, which is ideal for those with difficulty applying for individual insurance.
Group Life Insurance and Taxes
Your employer pays some or most of your coverage, but when it is above $50,000, you are required to pay tax. When your coverage exceeds that rate, the premiums your employer pays are known as imputed income.
Imputed income life insurance definition: the life insurance benefits you receive from your employer that are not part of your salary.
The IRS considers these benefits as taxable. You will find the taxable income on your paycheck in the following ways:
- Group Life Insurance as Imputed Income: The calculation depends on the group policy and the percentage of premiums your employer subsidizes.
- GTL: When you see ‘group term life’ or ‘GTL’ on your paycheck, it shows the taxable premiums paid by your employer.
You can also estimate potential taxes on your group insurance by using an imputed income on life insurance calculator to know what to expect.
Group Life Insurance Beneficiaries
Your beneficiaries will not pay income taxes in the case of your death. They will receive the death benefit. This is the payment beneficiaries receive after the death of a policyholder when the policy is still active.
Your primary beneficiary is the person who will suffer financially after your death. The secondary beneficiary applies when the primary beneficiary cannot receive the benefit for some reason. You can list several beneficiaries, even a charity.
Pros of Group Life Insurance
Coverage for Pre-Existing Conditions
Group life insurance is perfect for those who can’t purchase individual life insurance due to previous medical conditions. This insurance is guaranteed. No matter your health status, you will not be denied coverage.
This can benefit smokers and older adults because individual insurance coverage rises based on age and health factors.
Your employee covers most of the cost. Since you are a group under the same insurance, this significantly lowers the insurance costs and premium.
Less Additional Insurance
When you add personal life insurance, and it’s advisable that you do, you don’t need as much since group insurance provides good coverage.
Cons of Group Life Insurance
You’re Not the Policyholder
Your employer acquires the insurance from the insurer; this means the employer is the policyholder. When you get a new job, you will no longer benefit from the group life insurance. Having your employer as the policyholder limits how much insurance you can purchase.
Group insurance may be cheap, but this means there is less coverage for your dependents. You might need to add an individual life insurance policy to be well insured.
It’s Not Always for Everyone
Anyone can qualify for group life insurance, but not everyone will get access; you can only acquire it if your employer offers it.
Supplemental Life Insurance
This is also known as voluntary supplemental life insurance. It is the additional insurance you purchase on top of the one offered by your employer. You can get supplemental life insurance for yourself or a family member.
You buy it through your employer, which means there is no need for a medical exam. Most of these insurance policies are limited. Understand the extension of coverage before applying to one. The coverage comes in two forms: AD&D and burial insurance.
- Basic Group Life AD&D (Accidental Death and Dismemberment) Insurance: Beneficiaries benefit from this if you die in an accident. You can also receive a payout if you lose a limb, sight, or hearing in an accident.
- Burial Insurance Policy: The employer will pay insurance coverage of between $5,000 to $10,000 to cover funeral and burial costs.
Supplemental life insurance is hardly portable. Since there is a difference between supplemental employee life and ad&d insurance, you could purchase a separate ad&d policy from your insurer.
If you purchase insurance separately, you will have more control over the amount of coverage you receive. This way, you can tailor the coverage to your needs and the number of family members you provide for. This will also ensure that you keep the insurance after leaving work.
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