Group Life Insurance
What is group life insurance?
In group life insurance, many people are written together into a single policy. Group life insurance is generally much cheaper per head than individual life insurance.
Why buy group life insurance?
- Premiums are tax-deductable to the employer/policyowner
- Premiums are tax-free for the employee/insured
- Guaranteed issue—a great plus for members with health problems!
- Group life insurance enjoys the other tax advantages characteristic of all life insurance
Some restrictions apply, however:
The tax advantage for the employee applies only up to the amount of $50,000 per person. Beyond that amount, the employer may still deduct the premiums, but the employee must pay tax on the value of the insurance.
Guaranteed issue life insurance means that no medical exam or questionnaire is involved. However, if the number of participants in a group life insurance policy is very small, the insurance company may decline to offer a guaranteed issue policy.
How group life insurance works
Group life insurance is not limited to a specific type of insurance policy, but a one-year, renewable term life insurance policy is most popular.
A single life insurance policy provides coverage for all of the members of the organization or business.* The business or organization is the policyowner. The insured individuals can choose and change their own beneficiary but have no further authority.
The death benefit assigned to each employee need not be uniform, but the policyowner has limited ability to discriminate. One popular strategy is to make the death benefit a multiple of the employee’s salary.
*If you are interested in insurance which allows you to pick and choose participants, learn about key man life insurance.
Who can buy group life insurance?
Professional associations, such as businesses and unions can purchase group life insurance for their members. Fraternal orders or social clubs may not.
