What Is Group Life Insurance?

Definition & Examples of Group Life Insurance

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Group life insurance is one way to get life insurance at a lower cost or with less hassle than you could on your own. 

With group life insurance, a large entity like an employer or association, offers employees or members access to life insurance policies that are all under a single umbrella contract with the organization.

Understanding the benefits and drawbacks of group life insurance can help you decide on how best to take care of your life insurance needs.

What Is Group Life Insurance?

Most people will encounter group life insurance at their workplace. Since group life insurance is a contract between a group of covered individuals and an insurer, this kind of coverage is usually facilitated by large organizations such as employers, unions, or membership associations.

Employers who offer group life insurance will often provide a certain amount of coverage at no cost (or very low cost) to the individual employee. This is usually part of the standard benefits package offered to employees.

An employer may offer voluntary or supplemental life insurance, as well. This is also group life insurance, and is intended to provide more coverage than a basic life insurance policy. You might purchase additional coverage if you want a higher death benefit amount—the decision to purchase a voluntary policy is up to you.

Group life insurance policies may offer a flat death benefit amount or one equal to a multiple of your annual salary, such as one to two times. The cost for the basic policy is usually covered in full or in part by your employer. But even if you have to pay out of pocket, it will generally be less than what you would pay individually, since the insurer is basing cost on the risk of the entire group (and your employer may cover part of the premium). 

Group life insurance is also often guaranteed, meaning you don’t have to answer medical questions or take an exam to qualify.

How Does Group Life Insurance Work?

When large organizations contract with an insurer to offer group life insurance to their employees or members, the employer holds the actual insurance policy, which is called the master contract. Covered individuals receive a certificate of insurance, rather than the policy itself. Though the employer or organization holds the policy, each insured individual chooses their own beneficiaries.

Though group life insurance may be offered in either term or whole life policies, the majority of employers offer group term life insurance. This means the insurer will only pay a death benefit to your beneficiaries if you die during the term specified (usually this is as long as you are employed).

Group term life insurance may be portable, meaning you can keep the policy if your employment, or association with the entity holding the master contract, is terminated.

Keep in mind that even if your coverage is portable, its cost can increase substantially because you’ll be responsible for 100% of the premium. 

Do I Need Group Life Insurance?

Group life insurance is a nice perk when it is offered as part of your employment benefits package. Whether your employer covers the entire cost of premiums or you need to pay a portion of your premiums via payroll deduction, it is likely that group life insurance will be the least expensive life insurance you can find. It’s smart to take advantage of this low-cost (or possibly free) benefit, particularly if you might have trouble qualifying for life insurance on your own.

However, group life insurance may not provide sufficient life insurance coverage. One option is to increase coverage either with additional voluntary life insurance (through your employer or organization), or by purchasing an individual life insurance policy on your own.

Life insurance policies purchased outside of work, or a member-organization, typically require a medical history and exam in order to set your rate and qualify for coverage.

Since life insurance costs less the younger you are, it can be prudent to also purchase an individual policy outside the workplace (or membership organization) that won’t terminate or increase in cost if you leave your job (or cancel your membership).

Key Takeaways

  • Group life insurance is offered to individuals through an employer or organization, with premiums determined based upon the risk factors of the group as a whole, which reduces costs.
  • Generally, group life insurance is guaranteed and does not require you to answer medical questions or undergo a medical exam.
  • Many employers offer a minimum amount of group life insurance at no cost to their employees as part of the employment benefits package.
  • There are limits to group life insurance—some policies may not be portable and/or coverage may be insufficient for your needs.