It makes sense that employers these days should provide benefits to recruit and retain prospective employees and top talents. Group life insurance is one of the most common benefits companies offer to their employees. According to the Bureau of Labor Statistics (BLS), in 2020, about 60% of non-government employees accessed the employers’ life insurance.
What Is Group Life Insurance?
Group life insurance is a kind of life insurance purchased by an entity such as a company or labor organization to provide coverage for the employees or group members. It is usually accessible as part of an employee benefits package.
Group life insurance often works like an individual term life policy:
- The policy is only valid for a certain number of years.
- The employer pays a portion or all the premiums to keep the policy in force.
- The beneficiary (a designated group or individual) will receive the death benefit when the policyholder passes away.
The employer or the company buying group life insurance for its staff or members is entitled to retain the master contract. Employees receiving the coverage through the group policy have a coverage certificate. This certificate needs to be provided to a subsequent insurer when an individual employee leaves the company and ends their policy.
Group Life Insurance Coverage
Group life insurance can be like either term or permanent insurance, depending on the purchasing company’s resources and objectives. Most group life insurance is primarily annual renewable term insurance. The policyholder can renew the contract each year without any insurability evidence. The insurance company can adjust the premium rates annually based on the group’s experience rating.
However, the company may select permanent group life insurance that includes ordinary group insurance, universal group life insurance, and group paid-up insurance. It is feasible for the company to deduct the premiums as a business expense. Employees do not need to report the employer-paid premiums for life insurance when the coverage does not exceed $50,000.
Group life insurance can enjoy favorable taxation if it meets some non-discriminatory requirements. Specifically, at least 70% of all employees must benefit from the policy, and no less than 85% of the policyholders cannot be critical employees.
The amount of coverage an employee gets is often predetermined by the employer. It is primarily a flat benefit or calculated depending on his earnings or position. For example, he can get a life insurance amount equivalent to 2½ times his salary.
Life Insurance Portability & Conversion
Employees are not allowed to keep group life insurance once they leave their company. However, they can choose to port or convert their policy. Though purchasing a new policy may sound fitting for their needs, group term policy portability or conversion can fill a coverage gap when they switch jobs.
Life Insurance Portability
When you switch jobs or retire, you can still benefit from your coverage at an affordable price. Typically, your medical conditions will decide whether you can port your group life insurance or not. If you can port your policy, you still stay on your previous company’s group life insurance plan. This company still manages the benefit, but you solely pay for your premiums.
Life Insurance Conversion
If you want to separate your policy from the company’s, you can turn it into an individual life insurance policy. This allows you to pay for and terminate the plan by yourself. You needn’t take a medical exam to convert your group policy, which is more beneficial for those who cannot qualify for a traditional coverage policy in the past.
Who Can Get Group Life Insurance?
Not everyone can access a group life insurance policy. If your company’s benefits package doesn’t include group coverage, this policy type is not available to you.
The company or organization often requires employees or group members to meet specific group life insurance policy requirements. The conditions may vary, but you typically must work for a minimum tenure before getting the coverage. For example, an employee needs to pass a 3-month probationary period before participating in the company’s health and life insurance benefits.
Pros Of Group Life Insurance
Below are some significant benefits you can reap when obtaining a group life insurance policy through your employer:
Generally, basic life coverage through work is free for employees. This means that you can get a small coverage amount at no cost. Even if you must pay the premiums, the rates are also lower than those of individual insurance policy since your company purchases group life insurance wholesale, which helps you pay a portion of the premiums.
It is easy to participate in a group life insurance policy because HR departments with your hiring documents can help you. Remarkably, you have to pay just a little. Any premiums you need to pay are drawn directly from your gross earnings, which proves to be indeed convenient.
No Medical Exams
Unlike the traditional life insurance policies that require medical exams or the underwriting process, group life insurance can be accessible to almost every employee in a company or organization. You can also opt for supplemental plans without the need to provide information about your age or health conditions.
Cons Of Group Life Insurance
However, due to their diverse needs and long-term career plans, group life insurance may not be the best option for some people:
When you leave the company, you may run the risk of not taking the policy with you. Though it can be possible for policy conversion into the individual plan, the cost could ascend dramatically. And if your next company’s benefits package does not include group life insurance, you may have to resort to an individual policy. For those at old age or more prone to medical conditions, the premiums rates are never low.
Most of the coverage through work acts as a kind of term life insurance, and the company or organization typically only works with one insurer. Thus, it is impossible for you to have diverse policy options. It is a hindrance for those who need a more complex product such as universal life or whole life.
Low Coverage Amounts
With group life insurance, you are restricted from purchasing as many coverage amounts as you wish. Moreover, the coverage amounts can be varying and low. Thus, you have to buy individual term life insurance instead or add the individual policy to your primary group policy when you need more coverage.
Frequently Asked Questions
Which benefit plans are available for my company?
There are base benefits for most of the plans and you can also add other specialty benefits to accommodate your employees.
Base benefits include:
– Prescription medicine, Dental care, Vision insurance, Disability programs, Life, critical illness and accident insurance
– Specialty benefits: Health care spending accounts (e.g., funds for physiotherapy), Benefits for self-employed or retired staff (e.g., RSSP submissions), Emergency medical coverage and travel assistance, and Expats or new to Canada insurance.
When do I need to provide medical records for Group Life Insurance?
There is not really a comprehensive list of situations that you might be required to provide medical details. However, we have found some of the most common cases that you can look out for, such as:
– When a staff requires a particularly high amount of coverage
– There has been a surge in coverage amounts for several employees
– You ask to cover a staff with higher benefits
It is important that you check with your insurance provider or consult your insurance broker/representative as they might have observed some other potential circumstances.
What information is required to get a quote for Group Life Insurance?
Some details will be needed so that insurers can provide you with an accurate quote including employer/ company details, the number of benefits you want, when the coverage should end, and individual employees’ information such as gender, age, salary, profession, workplace location, business travel demands.
If you have already purchased from another provider, the insurer might require additional information on the coverage you are already receiving also.
Why might I need a trust?
Some insurance companies will use a trust as a middle ground to make tax-advantaged payments to the staff themselves and their legal dependents.
What is the length of a typical contract?
This can vary among different insurance providers. Nevertheless, usually the contract period ranges from 12 to 16 months. After you have purchased the coverage, group benefits can start at the 1st or 15th day of the month.
Waiting periods are also flexible and if you are a fresh staff member of the company, your waiting period can be determined by your employer.