Employer-provided Group Life Insurance: For Many, It's Just the Beginning

For many families, group life insurance plays a significant role in their financial portfolio. While group life insurance offers several advantages, it is important to fully understand what this type of temporary insurance does and does not provide in terms of financial protection for your family.

A key factor in buying life insurance is having the right amount. After that, it’s important to select the right type of policy. The downside for those who rely solely on their employer for their life insurance protection is that they are reliant on their employer's choices and vulnerable if the employer changes or eliminates the benefit.

Group Life Basics
Group life insurance offers insurance protection to certain groups of people under one contract. It is available to groups of employees; however, members of various organizations or associations might also be eligible. Those who are covered by a group policy qualify for its protection as long as they are employed or part of the group for which it is provided.

Because group life insurance is typically term insurance, it lasts only for a specified period of time, and it does not accumulate cash value. In some cases, employees who terminate have the option to convert their group insurance protection although the cost may be prohibitive.

The face amount of a group life insurance policy will either be a specified amount, such as $10,000 or $25,000 or based on a multiple of income, such as two times salary.

Group Premiums
The premiums for group insurance are based on the claims experience the insurance company has had among all of the plans they have inforce.  In addition, plan design and demographics play a role in determining the cost of insurance. An individual’s own health is not a factor.

Since the premium rate is the same for everyone within the group, younger works subsidize the cost of older workers.

A major advantage of employer-provided group term insurance is that there are no tax implications to employees for amounts of $50,000 or less. The employer also benefits because the premiums for group life insurance are fully deductible up to a certain amount.

Individual Permanent Life Insurance: Complimenting Your Group Coverage
Individual permanent life insurance gives you the flexibility to make sure your coverage is there when you need it. Permanent insurance provides coverage beyond your working years and offers optional benefits, such as waiver of premium, which continues your coverage in the event you become disabled. The premium for an individual policy is based on the insured's actual age, health and lifestyle choices.

Portability is another important advantage of individually-owned insurance; this means you own and control the policy regardless of your employment. And, unlike a group term policy, a permanent policy builds cash value on a tax-deferred basis.

Putting It All Together
One way to know which plan or plans is best for your situation is to consult with a qualified insurance professional and analyze your own personal needs. When evaluating life insurance companies, it is important to consider buying coverage from a company with the highest ratings from the four major rating agencies: A.M. Best, Fitch Ratings, Standard & Poor’s and Moody’s Investor Services. Third party ratings are subject to change.

Group life insurance coverage is a valuable employee benefit. And, for many, an individual permanent life insurance policy is an appropriate way to bridge the gap between the amount of life insurance you need and the amount your employer provides.