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Life insurance provides workers with peace of mind, knowing their loved ones will be taken care of after they're gone, but it can get quite expensive. Fortunately for some, group life insurance can be an affordable alternative to costly individual policies. Below, we'll look at what group life insurance is, how it works, and who it's a good fit for.
Group life insurance is a type of life insurance policy that an employer purchases on behalf of their employees. The employer has what's called the master contract and each employee receives proof of insurance. Employees are covered under this work insurance as long as they remain with the employer.
Group term life insurance is the most popular. This covers the worker for a certain period of time, rather than for their entire lives as is the case with permanent life insurance.
Employees typically receive a basic amount of group life insurance for little to no cost. This might be a set dollar amount, like $50,000, or a multiple of the worker's salary. There's typically no medical exam or health questionnaire required, and the employer pays most or all premiums. All the employee has to do is select their beneficiaries.
Some companies give employees the chance to purchase voluntary life insurance as well. This optional life insurance, also known as supplemental life insurance, gives employees additional protection beyond the basic amount. Employees typically pay for this, and the cost comes directly out of their paychecks. They may have to complete a health questionnaire as well.
Employers determine who is eligible for their group life insurance policy. Some may allow new employees to join right away. Others may require workers to be with the company for a certain amount of time before they become eligible.
Once they're enrolled in the employer-provided life insurance, workers are usually covered until they quit or are fired.
Some companies enable workers to convert their employee life insurance to an individual policy if they leave their job. But doing so usually raises the premiums.
Getting life insurance through work offers several advantages over purchasing an individual policy. These include:
Getting group life insurance through an employer is usually a good idea, especially if it's free. But there are a few drawbacks to these types of policies that workers should be aware of.
First, policy options are limited. Most employers only offer group term life insurance, so those seeking permanent life insurance may have to look elsewhere. Workers who aren't sure which type of life insurance is best should check out this guide to term compared to whole life insurance.
Group life insurance policies usually only include a small amount of coverage for free. While some policies may give workers a chance to buy extra coverage, it might be easier for some to buy a separate individual life insurance policy to supplement their group life insurance. Thinking about how much life insurance you need can help you decide what's best.
Finally, group life insurance policies aren't always portable. Sometimes, coverage just ends when the employee leaves the company. Those who don't plan to remain with their employer long term may find it's less of a hassle to buy an individual policy up front instead of relying upon group life insurance.
It's almost always a good idea to take any basic group life insurance offered, especially if there's no cost to employees. It may also be smart to buy voluntary coverage through a group life insurance plan if the employee plans to remain with the company for the foreseeable future. They'll most likely get better rates by doing this than they would with an individual policy through the best term life insurance providers.
Those with health issues are also better off choosing group life insurance. The lack of medical exams means it's easier to find affordable coverage. Even if they leave the company, they may have an easier time converting their group life insurance policy to an individual one than they would finding an affordable rate on their own.
Group life insurance usually offers a basic level of coverage for free to employees, but many people will need more coverage if they want their families to be well taken care of.
There are two ways to get more coverage. Employees can either buy voluntary life insurance through their employer or they can seek out an individual life insurance policy on their own. Voluntary life insurance policies are probably going to be more affordable, but an individual policy gives the worker more freedom to choose the coverage and endorsements they're looking for.
Besides group life insurance, many employers offer the following insurance:
Voluntary life insurance is a type of group life insurance. It enables interested workers to purchase more than the free, basic life insurance amount if they want. Employees typically must pay extra for this coverage and the premiums come directly out of their paychecks. But they’re often more affordable than what the worker could get with an individual life insurance policy.
Voluntary accidental death and dismemberment (AD&D) coverage pays out a benefit amount if the worker is accidentally killed or loses a body part. It is often added as a rider to a life insurance policy. The money the worker's beneficiaries receive from AD&D coverage is in addition to the standard life insurance payout if the worker dies. But these policies can have significant limitations, and they don't cover deaths from natural causes.
When a worker retires, their group life insurance policy typically ends, unless they choose to convert the policy into an individual life insurance policy.
A group life insurance policy is technically owned by the employer, so employees are not able to cash out their policy.
Basic employee life insurance is a low, standard amount of coverage that a group life insurance policy offers to workers, usually for free. It might be a dollar amount, like $25,000 or $50,000. Or it might be a multiple of the worker's income.
Supplementary life insurance is another term for voluntary life insurance. It enables interested workers to buy more protection than the basic employee life insurance gives them.
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