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Group Life Insurance

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Group life insurance is now the most common form of life insurance coverage in America.

108 million Americans have group life insurance. 102 million have life insurance through an individual policy. – LIMRA Study

For the millions of Americans who have signed up for a group life insurance policy, it’s often a perk of their employment that provides some peace of mind.

Yet, it’s important to understand what group life insurance plans include – and what they don’t – in order to answer two important questions.

  1. Does a group life insurance plan make sense for me?
  2. Is it enough financial protection for my loved ones?

Here, you will find everything you need to know about group life insurance to help you make sound decisions regarding your life insurance needs.

Group Life Insurance Basics

Group life insurance is a single contract which covers a group of people, usually with a required minimum number of applicants.

Said differently, group life insurance is coverage provided by an employer (or other entity) to its employees (or members).

What

Group life insurance policies are generally written as a renewable term policy that your employer pays on a monthly basis with a lump sum death benefit.

Why

Provide an additional benefit or incentive by an employer (or entity) to attract and retain employees (or members).

How

Participating employees receive a certificate of coverage.

The life insurance contract is between the employer and the life insurance company.

How Group Life Insurance Works

There are 3 main steps to most group life insurance plans:

  1. Enroll in your employer-provided (or other entity-provided) life insurance plan.
  2. List your beneficiary.
  3. If you die while enrolled in the plan, your beneficiary will usually receive a lump-sum payment.

Enrolling in a basic group life insurance plan is simple. Count on filling out straightforward paperwork.

Usually, you can sign up for your employer’s group life plan during the annual open enrollment period for employee benefits. Some life events, such as marriage, allow for you to adjust your benefits package.

Or, if you were recently hired on, you will likely have a window of time to sign up.

Sometimes, your enrollment into a group life program is automatic with no requirements on your end. Verify with your employer the necessary steps, if any, to sign up.

Basic plans typically provide 1 – 3 times your annual salary in coverage.

For example, if you make $50,000 a year, your group policy may pay your beneficiaries somewhere between $50,000 – $150,000 in a lump sum payment.

Pros and Cons of Group Life Insurance

Let’s take a look at the benefits and the drawbacks, one at a time.

Pros

There are benefits to this type of coverage.

Basic group life insurance is either free or cheap to the employee.

Typically guaranteed issue, basic group life insurance eligibility requirements are minimal.

There is no medical exam or blood test. You only need to complete an enrollment form.

Employees have peace of mind knowing they have some life insurance protection.

Everyone participating in the group life plan has the same rate. So, if you are unhealthy or older, a group policy may be your best option.

Employers can attract and retain employees with the added benefit of their employment.

Employers typically receive a tax deduction for the cost of the group life insurance plan.

The employee’s death benefit is considered tax-free under many circumstances (typically up to a $50,000 policy). Refer to IRS Code Section 79 for specific rules and regulations.

Cons

To be clear, there are some definite drawbacks to group life plans.

Most importantly, your coverage will be modest. In almost all situations, a group policy would not provide sufficient funds to your loved ones if you pass away.

Employers are not mandated to provide group life insurance. Just because it’s offered today, doesn’t mean it will be available in the future.

Your insurability is not locked in. There are two reasons to be concerned about not having your insurability secured:

  1. Group life insurance can end.
  2. If you develop a health condition while only having group coverage, you may lose the ability to purchase an individual policy with an appropriate face amount.

Group life insurance usually has 5-year age bands. If you purchase supplemental coverage, your premiums will likely increase every 5 years. At some point, as you age, group life insurance rates become cost-prohibitive.

It is also called increasing premium term group life insurance for this very reason.

Your policy is sometimes not portable, also.

If you leave your job (or organization), your life insurance may not follow you, leaving you potentially uninsured.

The employer owns and has control of the policy, not the employee.

Types of Group Plans

While most of our article covers employer-provided group life insurance, other types exist as well.

In fact, you can find group life insurance plans all over the United States:

  1. Employer
  2. Federal Government
  3. Veteran’s Affairs
  4. Membership Organizations

Here, you’ll find a summary of each, whether or not they are recommended, and a description of the group life insurance companies for each plan.

Employer

When group life insurance is discussed, most often, people are referring to coverage offered through their job. It is the most common form of group life insurance.

What Is It?

Employer-provided life insurance for qualifying employees only.

Is It Recommended?

Yes, with a caveat.

For sure, sign up for the basic group life insurance plan which is offered at no cost to you. That’s a no brainer.

Next, evaluate whether a supplemental group policy makes sense or not. Generally, if you are young and healthy, you will likely find a more affordable individual policy with a larger face amount.

In other words, in many situations, we recommend purchasing an individual policy in addition to the basic group life insurance provided through your employer.

Common Group Life Insurance Companies

In 2018, Employee Benefits Advisor, in collaboration with MiEdge, a data analytics firm, compiled information on the top carriers providing group life insurance plans to employees.

1. MetLife

  • In-force life premium: over $3.4 billion
  • Headquarters: New York City, New York
  • A.M. Best Rating: A+ (Superior)

Click here to read more about MetLife.

2. Prudential

  • In-force life premium: over $1.5 billion
  • Headquarters: Newark, New Jersey
  • A.M. Best Rating: A+ (Superior)

Click here to read more about Prudential.

3. Cigna

  • In-force life premium: over $1.1 billion
  • Headquarters: Bloomfield, Connecticut
  • A.M. Best Rating: A (Excellent)

4. Securian

  • In-force life premium: over $1 billion
  • Headquarters: St. Paul, Minnesota
  • A.M. Best Rating: A+ (Superior)

5. The Hartford

  • In-force premium: over $875 million
  • Headquarters: Hartford, Connecticut
  • A.M. Best Rating: A (Excellent)

Federal Government

The largest group life insurance policy in the world is provided by the federal government and is called, Federal Employees’ Group Life Insurance (FEGLI). In fact, FEGLI currently covers over 4 million people.

What

Established on August 29, 1954, FEGLI is group term life insurance that covers current and retired federal employees, along with their family members.

FEGLI offers basic and supplemental (Option B) coverage.

Is It Recommended?

We regularly recommend the cost-effective basic FEGLI plan.

The basic plan provides one year’s worth of your basic annual salary, plus $2,000. Your age does not affect the cost of basic insurance.

If you become a federal employee, you are automatically enrolled into FEGLI’s basic plan, unless you waive coverage.

Different than most employer-sponsored basic plans, FEGLI’s basic plan does include payroll deductions. Federal employees pay two-thirds of the cost.

However, the basic plan remains affordable into retirement.

In addition to basic coverage, just like group life insurance at many corporations, FEGLI also offers supplemental coverage (they call it Option B).

Option B coverage is not always recommended. You’ll want to carefully evaluate if FEGLI’s Option B makes sense for you.

You pay the full cost of Optional insurance, and the cost depends on your age. – Office of Personnel Management

Key considerations for Option B:

  • Provides a death benefit between 1 – 5 times your basic annual salary
  • Typically affordable until you reach age 50
  • At ages 50, 55, and 60 – the rates keep doubling (policy becomes expensive)

Company

The federal government holds a contract with a private entity to provide group life insurance to federal employees.

Specifically, the Office of Personnel Management has contracted with Metropolitan Life Insurance Company (MetLife) and administers the group life program to federal employees.

In fact, MetLife has an office specifically created for the FEGLI program called, The Office of Federal Employees’ Group Life Insurance (OFEGLI).

OFEGLI assesses all FEGLI group life insurance claims.

Veteran’s Affairs

The Veteran’s Affairs (VA) aims to provide support to service members and veterans alike, including offering group term life insurance coverage.

What

On September 29, 1965, Congress established a mandate requiring the VA to enter into a formal agreement with a private insurance carrier, in order to provide group life insurance protection to its service members.

Two types of group life insurance exist under the VA:

  1. Servicemembers Group Life Insurance (SGLI)
  2. Veterans Group Life Insurance (VGLI)

Is It Recommended?

Yes, especially SGLI.

Let’s start with SGLI.

SGLI provides $400,000 of coverage automatically, with the option of decreasing the coverage amount in decrements of $50,000.

Members on active duty, active duty for training or inactive duty for training and members of the Ready Reserve or National Guard are automatically covered for $400,000, the maximum amount of coverage. – U.S. Department of Veteran’s Affairs

Service members are automatically enrolled in SGLI’s plan unless they waive coverage.

Note – SGLI also provides traumatic injury protection as well as life insurance protection for spouses and children.

Service members do pay a modest monthly premium, not to exceed $27. Premiums remain level as long as the service member is in the military.

SGLI’s coverage will end 120 days after separation from the military.

Now, the basics of VGLI.

VGLI allows service members to convert their SGLI plan into a lifetime renewable term policy after separating from the military.

With Veterans’ Group Life Insurance (VGLI), you may be able to keep your life insurance coverage after you leave the military for as long as you continue to pay the premiums. – U.S. Department of Veteran’s Affairs

Your coverage amount will be based on how much SGLI coverage you had upon your separation from the military. You do have the option of increasing your face amount in increments of $25,000, every five years until you reach $400,000 or age 60.

Keep in mind – unlike SGLI, your VGLI premiums will increase every five years. Premiums will be more expensive than the SGLI program.

Company

Like to the FEGLI program, the Veteran’s Affairs holds a contract with a private carrier in order to provide group life insurance to current and retired service members.

The VA maintains a contract with Prudential Life Insurance Company.

Prudential, via the Office of Servicemens’ Group Life Insurance (OSGLI), manages and administers the SGLI and VGLI group life insurance.

Membership Organizations

Some membership organizations, like AARP, associations for the self-employed, and labor unions offer group life insurance as an added benefit of membership.

What

Let’s start by defining a membership organization.

A labor organization or a trade association, cooperative or other incorporated membership.

The specifics of a group life insurance policy vary by each organization offering the coverage.

Is It Recommended?

Possibly.

Before signing up for group life insurance through your organization, answer the following questions:

  1. Do the available face amounts meet my financial needs?
  2. Do I need to pay a premium?
  3. If so, much do the premiums cost (in comparison to an individual policy, if I qualify for one)?
  4. Do the premiums increase as I age?

Each organization’s plan is different. We’ll cover a few popular ones so that you can gain a general idea of whether it could make sense for you.

Keep in mind – the organization must partner with a life insurance carrier in order to offer a life insurance product.

Organizations And The Companies They Contract With

1. AARP

AARP, formally called the American Association of Retired Persons, offers a number of group life insurance products to its members including:

  • Term
  • Permanent (Whole)
  • Guaranteed Acceptance

AARP contracts with New York Life to provide life insurance to their members.

AARP Term

  • Face amount: up to $100,000
  • No medical exam and only a few health questions
  • You must be between the ages of 50 – 74 (spouses 45 – 74) to qualify
  • Your premiums are based on your age and increase every 5 years
    • Important – as your premiums increase, the policy becomes expensive 

 Your AARP term policy will always end at age 80.

AARP Permanent

  • Face amount: up to $50,000
  • No medical exam and only a few health questions
  • You must be between the ages of 50 – 80 years old (spouses 45 – 80) to qualify
  • Your premiums will not increase and are based on the age of policy issuance

AARP Guaranteed Acceptance

  • Face amount: up to $25,000
  • Benefits are graded for the first two years
  • No medical exam and no health questions
  • You must be between the ages of 50 – 80 years old (spouses 45 – 80) to qualify
  • Your premiums will not increase and are based on the age of policy issuance

2. National Association for the Self-Employed

Also known as NASE, the National Association for the Self-Employed provides group decreasing term life insurance coverage as a benefit to membership. NASE represents over 150,000 business owners and their employees.

NASE holds a contract with MetLife to offer life insurance protection.

  • Face amount: $10,000
  • No medical exam
  • 60-day waiting period from joining
  • At age 60, benefits are reduced by 75%
  • At age 65, benefits are canceled

Depending on your level of membership, there are also spouse and dependent child group life options.

3. National Education Association

The National Education Association, or NEA, is the largest labor union organization in the United States with close to 3 million members. They offer group decreasing term life insurance protection to its members.

The NEA contracts with Prudential Life Insurance to provide coverage.

NEA Group Term Life Insurance, issued by The Prudential Insurance Company of America (Prudential), offers basic, decreasing term life insurance to all members in good standing. – National Education Association

  • Face amounts: $25,000 – $500,000
  • Premiums are based on age and increase every five years
  • No medical exam in most cases
  • Accelerated benefits are available
  • At age 70, benefits are reduced by 50%
  • At age 75, benefits reduce to 10% of original coverage amount

Bottom Line

Group life insurance plans vary significantly.

Always refer to these important questions to determine if a particular plan you qualify for is in your best interest:

  1. What face amounts are available and will they cover my financial needs?
  2. Is the plan free of cost for me?
  3. If not, what are my premiums? And, will my premiums increase as I age?
  4. Will the plan’s death benefit decrease as I age?
  5. Is there a better individual policy available for purchase?

Basic vs. Supplemental Group Plans

Here, we will be referring to group coverage provided through your work.

Basic

Basic group life insurance, typically known as employer-sponsored life insurance, is what is inherently included in many employees’ benefits packages.

Typically, there are a few stipulations for an employee to qualify for the basic group life insurance plan:

  • You need to be a permanent employee.
  • Work a certain number of hours each week.
  • Your employment must have started a certain time ago (e.g. 30 days).

Almost always, there is no medical exam and enrollment only involves basic paperwork.

Remember, this type of coverage is usually of little or no cost to the employee.

Basic group life ordinarily provides a lump sum death benefit of somewhere between 1 – 3 times the employee’s annual salary. (Note – the death benefit can vary by type of employee.)

Interestingly, the percentage of employers offering group coverage has declined since the 1980’s.

So, while it has become the most common type of life insurance coverage, not as many employers are offering the perk, usually due to the desire to cut costs.

Should I participate in basic group life insurance?

By all means, if your employer offers life insurance at no cost to you, sign up for it. This is a no-brainer.

Just remember, the policy’s death benefit will likely be modest.

Supplemental

Conversely, supplemental group life insurance is optional coverage that qualifying employees may choose to purchase – in addition to the basic coverage that is automatically provided.

Usually, payments are made through payroll deductions.

Supplemental coverage often allows the employee to purchase term coverage of additional multiples of their annual salary.

Further, depending on your employer’s plan, supplemental group life may be extended to a spouse or child (like a family plan).

Keep in mind, if you opt for supplemental coverage, you may need to answer a few health questions, submit your medical records or even participate in a physical exam.

Supplemental group life might necessitate you to demonstrate evidence of insurability.

Should I purchase supplemental group life insurance?

Possibly.

Ask the following questions to your employee benefits’ representative before opting to buy supplemental:

  1. How much coverage is available? (e.g. 4 times your annual income)
  2. Is life insurance available to loved ones who need coverage, such as a spouse?
  3. How much will it cost?
  4. Can my supplemental policy convert into an individual policy?

Pertaining to cost, keep in mind that your premiums will likely increase every five years.

So, if you are young, supplemental coverage will probably be affordable. However, at some point, especially as you near retirement, the coverage will likely become quite expensive and perhaps cost-prohibitive.

Advice

At the end of the day, your life insurance protection is for those you care most about. Ideally, you will want to secure the right coverage to protect those who rely on you financially.

In all likelihood, your group life insurance plan will only get you so far in acquiring financial protection.

Evaluate Individual Plans

We recommend you assess individual life insurance, that is, a policy that provides life insurance protection on your life only.

Level Term

Level term life insurance is coverage in which your life insurance premiums and death benefit remain the same for the duration of the policy.

Level term is popular, affordable and an excellent option for someone looking for temporary coverage at affordable rates.

  • Available for term lengths of 10, 15, 20, 25, and 30 years (age restrictions apply).
  • Premiums remain the same for the life of the policy.
  • You do not need to renew your policy annually.
  • Riders are available.
  • Often, you will have the option to renew the policy after the term length (likely expensive).
  • Sometimes, you will be able to convert your term policy into a permanent policy.

Whole Life

Whole life insurance, also called permanent life insurance, is protection that lasts your entire life. Your policy will not expire, as long as you make your premium payments.

While not as popular as level term, whole life makes sense for some situations.

  • Coverage lasts your whole life.
  • More expensive than term.
  • Includes a cash-value component with policy loan options.
  • Riders are available.

Click here to compare term versus whole life.

Next Steps

Securing life insurance may be one of the most important decisions you make.

Here’s what to do:

  1. Get the facts. Understand your group life insurance policy’s face amount, premium payments (if any), and expiration date. Compare the policy with your financial needs.
  2. Look beyond. With the help of an independent agent, evaluate if there is an individual policy available to you that best protects your loved ones.

Author:

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Heidi Mertlich

Heidi Mertlich is the owner of NoPhysicalTermLife.com. She is an independent life insurance agent specializing in no medical exam life insurance. Heidi is also an author for LifeInsurancePost.com, an online community of life insurance experts.

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