I wanted to spend a little bit of time covering some basic terminology about group life insurance. There are three basic types of group life insurance.
- Basic Group Term Life Insurance
- Voluntary Group Term Life Insurance
- Voluntary Group Whole Life Insurance/Universal Life Insurance/Variable Life Insurance
Basic Group Term Life Insurance
Basic group term life insurance is an amount of term life insurance coverage provided on the employee’s life. If an employee dies, a death benefit is paid. Most often, it’s a flat amount of coverage like $20,000. It can also be a multiple of salary such as one or two times the employee’s annual salary. If the employee’s annual salary was $25,000, then a 2X annual salary plan would be $50,000.
Usually the cost of basic group term life insurance is paid for by the employer and employees normally qualify for coverage regardless of health. An employer can provide up to $50,000 of basic group life on an employee’s life without an employee being taxed on the premiums.
ALERT! Although basic group life can be portable or convertible, in most cases it terminates when an employee retires or terminates employment leaving employees without coverage when they leave.
Voluntary Group Term Life Insurance
Voluntary group term life insurance is an amount of term life insurance coverage that employees can purchase above and beyond the amount provided by the basic group term life plan. Additional amounts may also be purchased on spouses and dependents. If an employee, spouse or dependent dies, a death benefit is paid. For the employee, coverage works like the basic group life in that it’s normally a flat amount of coverage or a multiple of salary. On spouses and children, coverage can be a flat amount or a percentage of the amount an employee has selected. Upon initial enrollment, certain amounts may be obtained without medical questions.
The cost of voluntary group life is paid by the employee through payroll deduction. It increases in price as the employee ages usually in five year increments. It may be portable or convertible when an employee leaves employment.
ALERT! An employee is usually required to purchase voluntary group life in order to purchase spousal or dependent coverage. If an employee does not need additional insurance protection, this could eliminate some employees from participating who otherwise would.
Voluntary Group Whole Life Insurance, Universal Life Insurance or Variable Life Insurance
Voluntary group whole life, universal or variable life coverage is an amount of life insurance coverage that an employee can purchase and maintain even if they retire or terminate from an employer. Coverage can be purchased on employees, spouses, children and sometimes grandchildren. Employees can, in most cases, purchase coverage on family members even if they do not purchase coverage for themselves. If a covered person dies, a death benefit is paid. With these types of plans, these policies also build cash values that can be used while the insured or owner is living.
The cost of this type of insurance is paid for by the employee through payroll deduction. It is almost always portable at the same rate and amount of insurance if the employee leaves employment.
ALERT! Universal life and variable life insurance policies are not without risk and these types of policies may not be guaranteed for the life of the policy.