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Buying Group Life Insurance for Employees: What You Need to Know

Whether you’re an employer for a large company or a small business, you may discover attracting and retaining top talent means offering a variety of benefits, such as group life insurance. The first question when it comes to purchasing coverage for your employees starts with the basics – what is group life insurance?

Since the employer is in charge of the policy, it’s important to know that if your company opts to terminate your group life insurance policy, coverage would stop for your employees.

What is Group Life Insurance?

Group life insurance is a single contract that covers an entire group of people. Typically, it’s offered by an employer or another large-scale entity, such as a labor organization, to its workers or members. It’s often provided as part of a complete employee benefit package.

This type of life insurance coverage can be beneficial for both employers and employees. For employers, group life insurance allows the possibility of tax-deductible premiums, protection of employees at lower rates, and it’s an enticing benefit for attracting and obtaining new talent. By purchasing group life insurance plans on a wholesale basis, this lowers the cost of coverage, making it an affordable option for employees. It’s usually cheaper than the cost of an individual protection plan, and it’s easier to qualify and sign up for.

With group life insurance, the employer or organization purchasing the insurance retains the official copy of the policy, known as the master contract. The employee or member being covered typically receives a certificate of coverage, which serves as proof of insurance, but is not the actual policy.

Since the employer is in charge of the policy, it’s important to know that if your company opts to terminate your group life insurance policy, coverage would stop for your employees.

Choosing Your Coverage

As an employer, offering a group life insurance plan means having to make big decisions, such as who should be covered, what type of benefits should be offered, and how much coverage is considered affordable and ideal.

If you decide to only offer group life insurance as a benefit to a few specific employees, you must meet certain nondiscrimination requirements in order to be able to deduct the premiums from your policy for federal tax purposes. This document is not intended to provide tax advice; to determine the exact requirements for your company you should seek the advice of a qualified tax professional.

The Most Common Option: Group Term Life Insurance

The most common form of group life insurance is term insurance. Typically, group term life is provided in the form of annual renewable term insurance. It’s typical for the employer to pay for most, and sometimes all, of the premiums. The amount of an employee’s coverage is usually equal to one or two times his or her annual salary.

For group term life insurance plans, employers can offer life insurance to small sub-groups of employees if they’re categorized under the following distinctions:

  • Marital status
  • Compensation
  • Job tasks
  • Length of service
  • Participation in a pension, profit-sharing, stock bonus, or accident and health plan
  • Other employment-related factors

Additional Coverage

While basic group policies, such as group-term life, may be offered, some policies allow for employees or members to have optional add-on coverage. This extra coverage, in addition to their basic life insurance policy, could be a good option for those with health issues. The premium still tends to be based on a cheaper group rate, and may be easier to qualify for than an individual policy.

No matter which type of coverage you choose for your company, it’s important to know your different options. Group life insurance provides financial and health options that can benefit both employers and employees.