Group Life Insurance (Ultimate Guide)

Group Life Insurance (Ultimate Guide)

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

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 is often a benefit of their employment that gives them peace of mind.

However, it is important to understand what group life insurance plans include, and what not, to answer two important questions.

  1. Does a group life insurance plan make sense to me?
  2. Is financial protection enough 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.

 

BASIC PRINCIPLES OF LIFE INSURANCE POLICY: GETTING STARTED

DEFINITION

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

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

THAN

Group life insurance policies are generally written as a renewable term life insurance policy that your employer pays monthly with a comprehensive 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

Hassle-free, there are 3 main steps to most group life insurance plans:

  1. Enroll in the life insurance plan provided by your employer (or other entity).
  2. Include your beneficiary.
  3. If you die while enrolled in the plan, your beneficiary will generally receive a death benefit.

Enrolling in a basic group life insurance plan is simple. Expect to complete the simple paperwork.

Generally, you can enroll in your employer’s group life insurance plan during the annual open enrollment period for employee benefits. Some life events, like marriage, allow you to adjust your benefits package.

Or, if you were recently hired, you probably have a time period to sign up.

Sometimes your enrollment in a group life insurance program is automatic, with no requirements on your part. Check with your employer for the steps, if any, to enroll.

Basic plans generally provide 1 to 3 times your annual coverage salary.

For example, if you earn $ 50,000 a year, your group policy may pay your beneficiaries between $ 50,000 and $ 150,000.

PROS AND CONS OF GROUP LIFE INSURANCE

THE GOOD

There are benefits to this type of coverage.

Basic group life insurance is free or cheap for the employee.

Generally, guaranteed acceptance, the basic eligibility requirements for group life insurance are minimal.

There is no medical examination or blood tests. You only need to complete a registration form.

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

All those who participate in the group life plan have the same rate. Therefore, if you are unhealthy or older, a group life insurance policy maybe your best option.

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

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

The employee’s death benefit is considered tax free in many circumstances (generally up to a $ 50,000 policy). See Section 79 of the IRS Code for specific rules and regulations.

NOT SO GOOD

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

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

Employers are not required to provide group life insurance. Just because it is offered today does not mean it will be available in the future.

Your insurability is not blocked. There are two reasons to worry about not insuring your insurability:

  1. Group life insurance may 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 adequate nominal amount.

Group life insurance generally has 5-year bands. If you buy supplemental coverage, your premiums will likely increase every 5 years. At some point, as you get older, group life insurance rates become impossible to pay.

Also called increasing premium term life group insurance for this very reason.

Your life insurance policy is also sometimes not portable.

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

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

TYPES OF GROUP PLANS

While most of our article covers employer-provided group life insurance, there are other types, too.

You can find group life insurance plans across the United States:

  1. Employer
  2. federal government
  3. Veterans Affairs
  4. Membership organizations

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

EMPLOYER

When group life insurance is discussed, most people refer to the coverage offered through their work. It is the most common form of group life insurance.

WHAT IS IT?

Life insurance provided by the employer only for qualified employees.

IT IS RECOMMENDED?

Yes, with a warning.

Absolutely sign up for the basic group life insurance plan offered to you at no additional cost. That’s obvious.

Then evaluate whether or not a supplemental group life insurance policy makes sense. In general, if you are young and healthy, you are likely to find a more affordable individual policy with a higher nominal amount.

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

COMMON GROUP LIFE INSURANCE COMPANIES

In 2018, the Employee Benefits Advisor, in collaboration with MiEdge, a data analysis company, compiled information on the top operators that provide group life insurance plans to employees.

FEDERAL GOVERNMENT

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

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

FEGLI offers basic and supplementary coverage (Option B).

IT IS RECOMMENDED?

We regularly recommend the low-cost FEGLI basic plan.

The basic plan provides a 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 in the FEGLI basic plan, unless you waive coverage.

Unlike most employer-sponsored basic plans, the FEGLI basic plan includes payroll deductions. Federal employees pay two-thirds of the cost.

However, the basic plan remains affordable until retirement.

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

Option B coverage is not always recommended. You will need to carefully assess whether FEGLI Option B makes sense to you.

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

Key considerations for Option B:

  • Provides a death benefit between 1 and 5 times your basic annual salary
  • Normally affordable until your 50th birthday
  • At age 50, 55, and 60, rates double (life insurance policy becomes expensive)

COMPANY

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

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

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

OFEGLI evaluates all FEGLI group life insurance claims.

VETERANS ‘AFFAIRS

The Department of Veterans Affairs (VA) aims to provide support to both service members and veterans, including offering group term life insurance coverage.

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

There are two types of group life insurance under the VA:

  1. Group Life Insurance for Service Members (SGLI)
  2. Group Life Insurance for Veterans (VGLI)

IT IS RECOMMENDED?

Yes, especially SGLI.

Let’s start with SGLI.

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

Members on active duty , active duty for training, or inactive duty for training and members of Ready Reserve or National Guard are automatically covered for $ 400,000, the maximum amount of coverage. – US Department of Veterans Affairs. USA

Service members automatically enroll in the SGLI plan unless they waive coverage.

Note: SGLI also provides protection against traumatic injuries, as well as life insurance protection for spouses and children.

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

SGLI 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 renewable life insurance policy for life after separating from the military.

With Group Life Veterans Insurance (VGLI), you may be able to maintain your life insurance coverage after leaving military service while you continue to pay premiums. – US Department of Veterans Affairs. USA

Your coverage amount will be based on the amount of SGLI coverage you had when you left the military. You have the option to increase your face amount in increments of $ 25,000, every five years until you reach $ 400,000 or turn 60.

Remember: Unlike SGLI, your VGLI premiums will increase every five years. Premiums will be more expensive than the SGLI program.

COMPANY

As with the FEGLI program, Veterans Affairs contracts with a private provider to provide group life insurance to current and retired service members.

The VA maintains a contract with Prudential Life Insurance Company. Prudential, through the Office of Services Group Life Insurance (OSGLI), administers SGLI and VGLI group life insurance.

MEMBERSHIP ORGANIZATIONS

Some membership organizations, such as AARP, independent worker associations, and unions offer group life insurance as an added benefit of membership.

Let’s start by defining a membership organization.

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

The details of a group life insurance policy vary according to each organization that offers the coverage.

IT IS RECOMMENDED?

Possibly.

Before you enroll in group life insurance through your organization, answer the following questions:

  1. Do the available nominal amounts meet my financial needs?
  2. Do I have to pay a premium?
  3. If so, how much does the premium cost (compared to an individual policy, if I qualify for one)?
  4. Do the premiums increase as I get older?

Each organization’s plan is different. We will cover a few popular ones so you can get a general idea of ​​whether it might make sense to you.

Remember: the organization must partner with a life insurance company to offer a life insurance product.

THE ORGANIZATIONS AND COMPANIES WITH WHICH THEY CONTRACT

1. AARP

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

  • Finished
  • Permanent (integer)
  • Guaranteed acceptance

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

AARP Term Life Insurance

  • Nominal amount: up to $ 100,000
  • No medical exam and only a few health questions
  • Must be 50-74 years old (spouses 45-74) to qualify
  • Your premiums are based on your age and increase every 5 years.
    • Important: as your premiums increase, the life insurance policy becomes expensive

Your AARP termination policy will always end at age 80.

AARP permanent life insurance

  • Nominal amount: up to $ 50,000
  • No medical exam and only a few health questions
  • Must be 50-80 years old (spouses 45-80) to qualify
  • Your premiums will not increase and are based on the age at which you obtained the policy.

AARP Guaranteed Acceptance Life Insurance

  • Nominal amount: up to $ 25,000
  • Benefits are qualified for the first two years (2-year waiting period)
  • No medical exam or health questions.
  • Must be 50-80 years old (spouses 45-80) to qualify
  • Your premiums will not increase and are based on the age at which you obtained the policy.

2. NATIONAL ASSOCIATION FOR EMPLOYEES

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

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

  • Nominal amount: $ 10,000
  • Without medical examination
  • You have a 60-day waiting period to join the group
  • At age 60, benefits are reduced by 75%
  • At age 65, benefits are canceled.

Depending on your membership level, there are also group living options for spouses and dependent children.

3. NATIONAL ASSOCIATION OF EDUCATION

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

NEA contracts with Prudential Life Insurance to provide coverage.

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

  • Nominal amounts: $ 25,000 – $ 500,000
  • Premiums are based on age and increase every five years.
  • Without medical examination in most cases
  • Accelerated benefits are available
  • At age 70, benefits are reduced by 50%.
  • At age 75, benefits are reduced to 10% of the original coverage amount.

AT THE END OF ACCOUNTS

Group life insurance plans vary significantly.

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

  1. What nominal amounts are available and will cover my financial needs?
  2. Is the plan free for me?
  3. If not, what are my cousins? And will my premiums increase as I get older?
  4. Will the plan’s death benefits decrease as I get older?
  5. Is there a better individual life insurance policy available for purchase?

BASIC VS. GROUP SUPPLEMENTARY PLANS

Here, we will refer to the group coverage provided through your work.

BASIC

Basic group life insurance, generally known as employer-sponsored life insurance, is what is inherently included in many employee benefits packages.

Generally, 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 (for example, 30 days).
  • Almost always, there is no medical exam and enrollment involves only basic paperwork.

Remember, this type of coverage generally has little or no cost to the employee.

Basic group life insurance generally provides a death benefit of between 1 and 3 times the employee’s annual salary. (Note: the death benefit may vary depending on the type of employee).

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

So while it has become the most common type of life insurance coverage, not many employers offer the benefit, usually due to a desire to cut costs.

SHOULD I PARTICIPATE IN BASIC GROUP LIFE INSURANCE?

Of course, if your employer offers free life insurance, sign up for it. This is obvious.

Just remember, the policy death benefit will probably be minimal.

SUPPLEMENTARY COVERAGE

In contrast, supplemental group life insurance is an optional coverage that eligible employees may choose to purchase, in addition to the basic coverage that is automatically provided.

Payments are generally made through paycheck deductions.

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

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

Please note that if you opt for supplemental coverage, you may need to answer some health questions, submit your medical records, or even participate in a physical exam.

Supplemental group life insurance may require you to show evidence of insurability.

SHOULD I BUY SUPPLEMENTARY GROUP LIFE INSURANCE?

Possibly.

Ask the employee benefits representative the following questions before choosing to purchase supplements:

  1. How much coverage is available? (for example, 4 times your annual income)
  2. Is life insurance available to loved ones who need coverage, like a spouse?
  3. How much will it cost?
  4. Can my supplemental life insurance policy become an individual policy?

Regarding cost, keep in mind that your premiums are likely to increase every five years.

Therefore, if you are young, supplemental coverage will likely be affordable. However, at some point, especially as you get closer to retirement, coverage will likely become quite expensive and perhaps prohibitive.

ADVICE

At the end of the day, your life insurance protection is for those who matter most to you. Ideally, you will want to ensure adequate coverage to protect those who trust you financially.

In all likelihood, your group life insurance plan will only take you so far until you acquire financial protection.

EVALUATE INDIVIDUAL PLANS

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

TERM OF LIFE INSURANCE

The life insurance term is one in which your insurance premiums of life and death benefit remain the same during the term of the policy coverage.

Term life insurance is a popular, affordable, and a great option for someone looking for temporary coverage at affordable prices.

  • Available for periods of 10, 15, 20, 25, 30, 35,and 40 years (age restrictions apply).
  • Premiums remain the same throughout the term of the policy.
  • You do not need to renew your policy annually.
  • Additional benefits are available.
  • You will have the option of renewing the term life insurance policy after the length of the term (probably expensive).
  • At times, you may be able to convert your term life insurance policy into a permanent policy.

THE WHOLE LIFE

The whole life insurance, also called permanent life insurance is protection that lasts throughout their lives. Your policy will not expire as long as you make your premium payments.

While not as popular as a term life insurance policy, whole life makes sense for some situations.

  • Coverage lasts a lifetime.
  • More expensive than the term.
  • Includes a cash value component with policy loan options.
  • Additional benefits are available.

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