Term life insurance issued to a group of people with a commonality or common interest is group term life insurance. Typically it’s issued through a school, work or trade association and premiums increase at regular intervals, usually annually or in 3 or 5 year periods. It’s a so-called ‘pure’ life insurance, with no cash value or cash value component, offering a benefit against an untimely death. Often the group term life insurance is very convenient to an employer as an easy way to offer affordable life insurance coverage to their employees.
As with any insurance, it is very important to keep paperwork and/or company name available to your beneficiaries when the time arises. It is as simple as registering on a life insurance database to guarantee this information will never get lost and become a lost life insurance policy.
True to its simplicity, group term life insurance is most always a flat coverage rate, like $5000 or $10000 per employee. Some employers even offer an insurance policy equal to several times an employee’s earnings. Eligible employees are sometimes divided into different classes by an employer, such as managers and laborers for example. Sometimes employers have an exclusion as to who is eligible for coverage, requiring employees to meet certain standards or requirements for coverage under the policy. This can be for something like a minimum number of hours worked per week, months worked per year or a certain number of years worked before an employee can be eligible under the terms of the policy.
The number of employees in a company determines if an insurer offers coverage with or without proof of insurability. A company can employ as few as 2 workers to start group coverage but it’s usually when the employer has around 10 or more employees that they begin to think about making a policy available. Plans limiting coverage amounts usually pass on mandatory physical assessment by a doctor or medical professional with a cap being set at $50,000. Plans with coverage over that often require employees to undergo the medical underwriting process. Employers often cap coverage amounts at $50,000 for tax reasons – any amount under that is tax deductible for the employer. The beneficiary won’t pay federal taxes either but may be required by law to pay state income taxes. Premium amounts are set per $1,000 of coverage, depending on the amount of coverage and if a medical checkup is a requirement. Premiums also depend on how many employees there are, the ages of the employee, gender and what kind of business the company operates. As the employees age costs go up but the larger the group usually means the lower the premiums. There may also be higher premiums for smokers and lower for non-smokers.
Group term life insurance is, essentially, ‘free’ coverage for the employee. But since employers usually limit the coverage amounts it is best to think of this employer-offered coverage as supplemental to their main life insurance protection. Dependent and spousal coverage may also be available but with certain limitations. Some policies also have an accelerated death benefit if the employee is suffering from a terminal illness and needs a portion of the death benefit in advance. Options vary but as employees retire it may be possible for them to keep the coverage or switch the plan to a permanent life insurance policy.
Until next time, Michael Hartmann http://www.findyourpolicy.com/
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