What Is Group Term Life Insurance? How Does It Work In 2024?

Group term life insurance is an insurance policy that covers members of a particular group, such as workers at a certain company. Many employers provide group term life insurance as a part of their employee benefits package, and some even make it available to spouses and dependents of employees. Companies usually provide group term life insurance at no cost for a base amount of coverage. However, employees can usually buy extra coverage through payroll deductions. Group term life insurance is a more affordable alternative to individual life insurance.

How does group term life insurance work?

Group term life insurance works about the same as an individual life insurance policy, but most employers won’t let you keep it if you leave the company. Keeping your group term life insurance coverage after leaving a company will probably be more expensive than buying a new policy on your own. Group term life insurance coverage also depends on employers since they get to choose how much of a death benefit to offer, whether they let employees increase their death benefit, and whether they make coverage available for spouses and dependents.

Here’s what you should consider when evaluating a group term life insurance policy:

Coverage amounts – Coverage varies among employers. Coverage may also depend on where you stand in the organizational hierarchy, as benefits for highly paid executives may be more comprehensive than those for lower-level employees.
Premium costs – Employers typically provide a certain amount of coverage for no cost, but you’ll have to pay for additional coverage. For young workers, group term insurance coverage is not expensive, but rates tend to go up as individuals age.
Eligibility – All employees are usually automatically enrolled in a base group term life insurance coverage. Eligibility includes working a certain number of hours per week. Group term life insurance coverage recipients are typically not required to go through underwriting, which is when the insurance company assesses how much of a risk a person poses.
Tax benefits – According to the IRS, the first $50,000 of group term life insurance is tax-free to the employee.

Group term life insurance works about the same as an individual life insurance policy. Here’s what you should expect:

Monthly or annual payments to maintain your group term life insurance policy.
The policyholder renews coverage yearly, but the policy can expire after some time. For example, most employers won’t let former employees keep the policy.
The insurer pays a death benefit to the policy’s beneficiaries for most causes of death.

The cost of group term life insurance varies depending on the company you work for. Sometimes employers have to contribute some money to the premiums, but companies usually cover the cost.

How can you get group term life insurance?

Consider enrolling in an employer-sponsored group term life insurance plan when you start a new job, especially if you’re not automatically enrolled. Group term life insurance policies don’t consider health and age, unlike a lot of other insurance policies. Some companies give the option of buying life insurance coverage on top of the employer-sponsored plan. Sometimes, your employer can also offer an accidental death and dismemberment insurance policy on top of your group term life coverage. You may have to complete an Evidence of Insurability form to get additional coverage.

Is group term life insurance worth it?

It’s definitely a good benefit to have, but beware of its limitations. Group coverage is linked to employment, so changing your job will likely result in your coverage ending. Converting to a permanent policy can also be pretty costly. A basic $50,000 group term life insurance policy may also not be enough. This can help pay for funeral expenses and debts, but you’ll need a larger policy if you want to leave more money behind for your family. Consider purchasing some individual coverage on your own.

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Advantages and Disadvantages of Group Term Life Insurance

Advantages	Disadvantages
Price – Basic coverage through work is usually free for employees. This way, you can get a basic amount of coverage at no cost.	Limited choice – Employers usually work with one insurer to provide basic group term life insurance coverage. If you want a wider range of policy options, you have to purchase an individual policy more suited to your needs.
It’s convenient – You can get coverage through work easily since the paperwork is usually part of your hiring documents. You can hand any questions or concerns you have to your HR department.	Coverage is tied to your job – You’re most likely not going to be able to take your policy with you when you leave your job. However, you can convert your group policy to individual life insurance when you leave, but at an extra cost. Keep in mind that the cost of individual life insurance policies increases as you age.
Easy acceptance – Group term life insurance plans are usually guaranteed through work, so everyone can qualify.	Low coverage amounts – You might need to buy an individual term life insurance policy because coverage through your employer can be low. Employer-provided group term life insurance doesn’t provide as large of a death benefit as an individual policy does.

Overall, it’s a good idea to take advantage of any free basic group term life insurance. Try comparing the cost of group life insurance available through work with what you can find on your own. If you find a comparable deal, consider opting out of supplemental coverage through work. While an individual policy will probably be more expensive, you’ll get more coverage if you need it. However, if you have a pre-existing condition and don’t qualify for competitively priced policies, group life insurance through your employer is your safest bet.

Frequently Asked Questions

Can I only get group term life insurance through my employer?

No. You can get it from a trade group, professional society, alumni association, and other organizations.

Will my beneficiaries have to pay tax on the benefit they receive in the event of my death?

There are rare exceptions, but no. Death benefits are considered taxable income.

Can I cash in a group term life insurance policy?

No, because a term life policy doesn’t have a cash value component. For a policy that builds cash value over time, consider buying an individual insurance policy.