Group Life Insurance: The Basics

 

Group Life Insurance offered within an employee’s benefits package is the most common form of group insurance. In fact, group insurance exists in almost every country where private insurance companies reside1. In one study conducted in the United States in 2017, approximately 108 million workers were covered under their company’s group Life Insurance policy, as opposed to the 102 million covered privately (1). This article aims to define group Life Insurance by identifying the price, coverage, and benefits of a group policy.

 

What is Group Life Insurance?

Group Life Insurance policies are a type of Term Life Insurance. Term Life Insurance functions as a means of temporary coverage for the insured for a specified duration of time (2). The premiums paid into the policy guarantee coverage within the parameters of the policy contract and timeline, but it accumulates no cash value or opportunities for returns on premium.

The type of term policy group insurance offers functions as an Annually Renewable Term, or an ART, policy. A traditional ART policy offers temporary coverage for the duration that premiums are paid and ceases the moment payments stop. Rather than a specified timeline for coverage, an ART covers the insured indefinitely for as long as premiums are paid (4). Placing these definitions in terms of a group Life Insurance policy, the coverage goes away either when payments cease, or the policy contract has been ended by the employer.

 

What Does Group Life Insurance Cover?

As an employer-offered benefit, group Life Insurance covers the employee as the insured but designates the employer as the policyowner. The employee receives a certificate of insurance but has no ownership rights over their policy. Coverage is ultimately reliant on the employer’s discretion, and they retain the right to discontinue coverage without the insured’s consent.

The amount of coverage an employee receives is based on the policy offered by the employer. For basic policies, the death benefit is commonly one to two times the employee’s salary and requires little to no underwriting. Supplemental policies regularly offer a range of between one and five times the (3) employee’s salary with little to no underwriting ; However, in some situations, employer supplemental policies can offer an extension of that coverage, usually five to ten times the salary, by allowing the employee to opt into full medical underwriting.

 

How Much is Group Life Insurance?

In general, insurance companies determine their premium prices based on a health/risk rating including gender, health history, and tobacco use. Group Life Insurance policies tend to average these factors, rather than individually assessing each employee, to reflect the entire group. Most often, this yields a unisex, semi-smoker, below-average health rating. In addition to the blended rating, as an ART, group policy premium costs increase annually based on the calculation for price (4) per unit of insurance at the insured’s newly attained, “year-ending” age .

 

What Happens to My Coverage?

There are several cases in which an employee’s benefit eligibility can change. Status of employment plays a large factor: If an employee retires, reduces their hours, or leaves the company, they are no longer eligible to hold a certificate of insurance within the group (2). Similarly, the employer may view another company or policy as a better fit for their benefits package and end the current contract that the employees are covered under.

As employees are not the policyowners, there is an inherent loss of control with their group insurance coverage; However, understanding the policy parameters will maximize use of the policy as part of an employee’s overall protection plan.