Group life insurance provides coverage for multiple people under a single master policy. It's commonly offered by employers as an employee benefit and has distinct features compared to individual life insurance.
Single master policy covering a group: - Master policy: Issued to group policyholder (employer, association, creditor) - Individual certificates: Each covered person receives certificate of insurance - Group underwriting: Minimal or no individual medical underwriting - Lower cost: Generally less expensive than individual policies
Policyholder (Master Policyholder): - Owns the master policy: Employer, association, union, creditor - Pays premiums: Often pays all or part - Administers plan: Handles enrollment, changes, claims
Insured/Certificate Holder: - Covered individual: Employee, member, borrower - Receives certificate: Proof of coverage document - May pay portion: Through payroll deduction
Beneficiary: - Receives death benefit: Person(s) designated by insured - Insured chooses: Not the employer
Not a policy: - Summary of coverage: Shows amount, effective date, beneficiary - Evidence of coverage: Proof individual is insured - References master policy: Full terms in master policy - Not a contract: Master policy is the contract
Contains: - Coverage amount - Effective date - Beneficiary designation - Conversion rights - Claims procedures
Most common type:
Flat amount:
All employees: $50,000
Simple, easy to administer
Multiple of salary:
Coverage: 1×, 2×, or 3× annual salary
Employee earning $60,000: $120,000 coverage (2× salary)
Higher earners get more coverage
Position schedule:
Executives: $500,000
Managers: $250,000
Supervisors: $100,000
Employees: $50,000
$50,000 Exclusion (IRC § 79): - First $50,000: No taxable income to employee - Over $50,000: Imputed income based on IRS Table I - Employer deducts: All premiums as business expense
Example:
Employee coverage: $150,000
Employee age: 50
Table I rate (age 50-54): $0.23 per $1,000 per month
Taxable coverage: $150,000 - $50,000 = $100,000
Monthly cost: ($100,000 ÷ $1,000) × $0.23 = $23
Annual imputed income: $23 × 12 = $276
Employee reports: $276 as additional taxable income
Permanent insurance: - Accumulates: Builds paid-up insurance each year - Cash value: Some cash value accumulation - Combination: Often combined with term for full benefit
Permanent coverage option: - Portable: Can take with you when leave - Flexible: Adjust coverage and premiums - Employee pays: Typically employee-paid (after-tax) - Supplemental: Addition to basic group term
Group underwriting: - Participation requirements: Minimum percentage must enroll - Employer pays large portion: Ensures broad participation - Pre-existing conditions: Usually covered immediately - No individual evidence: Most don't require medical exams
Characteristics needed: 1. Group formed for purpose other than insurance: Employment, association membership 2. Minimum size: Typically 10+ employees (varies by state) 3. Flow of persons: People join and leave group 4. Automatic determination: Amounts determined by formula, not individual selection 5. Minimum participation: Usually 75% if contributory
Non-Contributory: - Employer pays 100%: All premiums paid by employer - 100% participation: All eligible employees covered - No evidence required: Guaranteed issue - More attractive: Better employee benefit
Contributory: - Employees pay part: Share premium cost through payroll deduction - Minimum participation: Typically 75% must enroll - May require evidence: If don't enroll during eligibility period - More common: Shares cost burden
Example:
Non-contributory:
Employer pays: 100% of premium
Participation: 100% (all employees covered)
Evidence of insurability: None required
Contributory:
Employer pays: 60% of premium
Employee pays: 40% (payroll deduction)
Participation requirement: 75%
Evidence if late enrollment: May be required
Typical requirements: - Full-time employment: Minimum hours (e.g., 30 hours/week) - Waiting period: 30-90 days before eligible - Active at work: Must be actively working - Employee class: May limit to certain classes
Initial eligibility period: - 31 days: From eligibility date - No evidence: Guaranteed issue during this window - Late enrollment: May require medical underwriting
Open enrollment: - Annual: Once per year - Increase coverage: Elect additional or different amounts - Evidence may be required: For increases
Must be working on effective date: - Not sick or disabled: Must be at work - If absent: Coverage delayed until return to work - Protects insurer: Prevents adverse selection
Example:
Employee eligible: January 1
Out sick: January 1-15
Returns to work: January 16
Coverage effective: January 16 (when actively at work)
Not: January 1
Coverage terminates when: - Employment ends: Quit, fired, laid off - Retirement: Unless retiree coverage offered - Eligibility lost: Drop below minimum hours - Master policy ends: Group plan terminated
Right to convert to individual policy:
Example:
Group coverage: $200,000
Employee terminates: June 1
Conversion period: 31 days (through July 1)
Within 31 days:
- Can convert up to $200,000
- No medical exam required
- Premium based on age 45 (current age)
- Whole life policy
Estimated premium:
Age 45, $200,000 whole life: ~$4,000/year
(Much higher than group term, but guaranteed issue)
Coverage continues: - 31-day extension: If die within 31 days - Death benefit paid: Even if didn't convert - Group amount: Pays group coverage amount - Protects employee: Grace period for conversion
Optional coverage: - Spouse life insurance: Coverage on employee's spouse - Child coverage: All children under one rider - Lower amounts: Typically $10,000-50,000 - Employee-paid: Usually contributory
Child coverage typical terms:
Birth to 6 months: $1,000-2,000
Age 6 months to 19 (or 26 if student): $10,000
All children: One premium covers all
Conversion: Children can convert at age 21/25
Pay off debt if borrower dies: - Lender is beneficiary: Bank, finance company, credit union - Decreasing coverage: Matches declining loan balance - Short-term: Term of loan (1-10 years typically)
Credit life (death benefit): - Pays loan balance: If borrower dies - Protects lender: Ensures loan repaid - Protects borrower's estate: Debt doesn't burden heirs
Credit disability: - Pays loan payments: If borrower becomes disabled - Monthly benefit: Covers monthly payment - Limited duration: 12-24 months typically
Group basis: - Group policy: Lender is master policyholder - Certificates: Each borrower gets certificate - Simplified underwriting: Often guaranteed issue - Decreasing term: Coverage decreases with loan balance
Example:
Car loan: $30,000
Term: 5 years
Monthly payment: $550
Credit life coverage:
Initial: $30,000
Year 1: $24,000 (remaining balance)
Year 2: $18,000
Year 3: $12,000
Year 4: $6,000
Year 5: $0 (loan paid off)
If borrower dies year 2:
Benefit paid: $18,000 (to lender)
Loan: Paid in full
Estate: No debt
Heavily regulated: - Premium limits: Maximum rates set by state - Voluntary: Must be optional, not required - Disclosure: Terms must be clearly disclosed - Refunds: Pro-rata refund if loan paid early - Cannot require: Lender cannot require as loan condition (must be voluntary)
Hybrid individual/group: - Individual policies: Separate policy for each person - Group enrollment: Sold through employer or association - Simplified underwriting: Less stringent than true individual - Employee-paid: Payroll deduction - Portable: Can keep if leave group
| Feature | Group Life | Individual Life |
|---|---|---|
| Underwriting | Simplified/group | Full individual medical |
| Portability | Limited (conversion) | Fully portable |
| Cost | Lower | Higher |
| Coverage amount | Limited | Unlimited (based on needs) |
| Cash value | Usually none (term) | Available (permanent) |
| Ownership | No ownership rights | Own the policy |
| Premiums | May increase | Level (whole life) |
| Customization | Limited options | Fully customizable |
| Beneficiary | Insured chooses | Owner chooses |
| When terminates | Leave employment | Can keep for life |
Group life insurance provides coverage for multiple people under a single master policy. It's commonly offered by employers as an employee benefit and has distinct features compared to individual life insurance.
Single master policy covering a group: - Master policy: Issued to group policyholder (employer, association, creditor) - Individual certificates: Each covered person receives certificate of insurance - Group underwriting: Minimal or no individual medical underwriting - Lower cost: Generally less expensive than individual policies
Policyholder (Master Policyholder): - Owns the master policy: Employer, association, union, creditor - Pays premiums: Often pays all or part - Administers plan: Handles enrollment, changes, claims
Insured/Certificate Holder: - Covered individual: Employee, member, borrower - Receives certificate: Proof of coverage document - May pay portion: Through payroll deduction
Beneficiary: - Receives death benefit: Person(s) designated by insured - Insured chooses: Not the employer
Not a policy: - Summary of coverage: Shows amount, effective date, beneficiary - Evidence of coverage: Proof individual is insured - References master policy: Full terms in master policy - Not a contract: Master policy is the contract
Contains: - Coverage amount - Effective date - Beneficiary designation - Conversion rights - Claims procedures
Most common type:
Flat amount:
All employees: $50,000
Simple, easy to administer
Multiple of salary:
Coverage: 1×, 2×, or 3× annual salary
Employee earning $60,000: $120,000 coverage (2× salary)
Higher earners get more coverage
Position schedule:
Executives: $500,000
Managers: $250,000
Supervisors: $100,000
Employees: $50,000
$50,000 Exclusion (IRC § 79): - First $50,000: No taxable income to employee - Over $50,000: Imputed income based on IRS Table I - Employer deducts: All premiums as business expense
Example:
Employee coverage: $150,000
Employee age: 50
Table I rate (age 50-54): $0.23 per $1,000 per month
Taxable coverage: $150,000 - $50,000 = $100,000
Monthly cost: ($100,000 ÷ $1,000) × $0.23 = $23
Annual imputed income: $23 × 12 = $276
Employee reports: $276 as additional taxable income
Permanent insurance: - Accumulates: Builds paid-up insurance each year - Cash value: Some cash value accumulation - Combination: Often combined with term for full benefit
Permanent coverage option: - Portable: Can take with you when leave - Flexible: Adjust coverage and premiums - Employee pays: Typically employee-paid (after-tax) - Supplemental: Addition to basic group term
Group underwriting: - Participation requirements: Minimum percentage must enroll - Employer pays large portion: Ensures broad participation - Pre-existing conditions: Usually covered immediately - No individual evidence: Most don't require medical exams
Characteristics needed: 1. Group formed for purpose other than insurance: Employment, association membership 2. Minimum size: Typically 10+ employees (varies by state) 3. Flow of persons: People join and leave group 4. Automatic determination: Amounts determined by formula, not individual selection 5. Minimum participation: Usually 75% if contributory
Non-Contributory: - Employer pays 100%: All premiums paid by employer - 100% participation: All eligible employees covered - No evidence required: Guaranteed issue - More attractive: Better employee benefit
Contributory: - Employees pay part: Share premium cost through payroll deduction - Minimum participation: Typically 75% must enroll - May require evidence: If don't enroll during eligibility period - More common: Shares cost burden
Example:
Non-contributory:
Employer pays: 100% of premium
Participation: 100% (all employees covered)
Evidence of insurability: None required
Contributory:
Employer pays: 60% of premium
Employee pays: 40% (payroll deduction)
Participation requirement: 75%
Evidence if late enrollment: May be required
Typical requirements: - Full-time employment: Minimum hours (e.g., 30 hours/week) - Waiting period: 30-90 days before eligible - Active at work: Must be actively working - Employee class: May limit to certain classes
Initial eligibility period: - 31 days: From eligibility date - No evidence: Guaranteed issue during this window - Late enrollment: May require medical underwriting
Open enrollment: - Annual: Once per year - Increase coverage: Elect additional or different amounts - Evidence may be required: For increases
Must be working on effective date: - Not sick or disabled: Must be at work - If absent: Coverage delayed until return to work - Protects insurer: Prevents adverse selection
Example:
Employee eligible: January 1
Out sick: January 1-15
Returns to work: January 16
Coverage effective: January 16 (when actively at work)
Not: January 1
Coverage terminates when: - Employment ends: Quit, fired, laid off - Retirement: Unless retiree coverage offered - Eligibility lost: Drop below minimum hours - Master policy ends: Group plan terminated
Right to convert to individual policy:
Example:
Group coverage: $200,000
Employee terminates: June 1
Conversion period: 31 days (through July 1)
Within 31 days:
- Can convert up to $200,000
- No medical exam required
- Premium based on age 45 (current age)
- Whole life policy
Estimated premium:
Age 45, $200,000 whole life: ~$4,000/year
(Much higher than group term, but guaranteed issue)
Coverage continues: - 31-day extension: If die within 31 days - Death benefit paid: Even if didn't convert - Group amount: Pays group coverage amount - Protects employee: Grace period for conversion
Optional coverage: - Spouse life insurance: Coverage on employee's spouse - Child coverage: All children under one rider - Lower amounts: Typically $10,000-50,000 - Employee-paid: Usually contributory
Child coverage typical terms:
Birth to 6 months: $1,000-2,000
Age 6 months to 19 (or 26 if student): $10,000
All children: One premium covers all
Conversion: Children can convert at age 21/25
Pay off debt if borrower dies: - Lender is beneficiary: Bank, finance company, credit union - Decreasing coverage: Matches declining loan balance - Short-term: Term of loan (1-10 years typically)
Credit life (death benefit): - Pays loan balance: If borrower dies - Protects lender: Ensures loan repaid - Protects borrower's estate: Debt doesn't burden heirs
Credit disability: - Pays loan payments: If borrower becomes disabled - Monthly benefit: Covers monthly payment - Limited duration: 12-24 months typically
Group basis: - Group policy: Lender is master policyholder - Certificates: Each borrower gets certificate - Simplified underwriting: Often guaranteed issue - Decreasing term: Coverage decreases with loan balance
Example:
Car loan: $30,000
Term: 5 years
Monthly payment: $550
Credit life coverage:
Initial: $30,000
Year 1: $24,000 (remaining balance)
Year 2: $18,000
Year 3: $12,000
Year 4: $6,000
Year 5: $0 (loan paid off)
If borrower dies year 2:
Benefit paid: $18,000 (to lender)
Loan: Paid in full
Estate: No debt
Heavily regulated: - Premium limits: Maximum rates set by state - Voluntary: Must be optional, not required - Disclosure: Terms must be clearly disclosed - Refunds: Pro-rata refund if loan paid early - Cannot require: Lender cannot require as loan condition (must be voluntary)
Hybrid individual/group: - Individual policies: Separate policy for each person - Group enrollment: Sold through employer or association - Simplified underwriting: Less stringent than true individual - Employee-paid: Payroll deduction - Portable: Can keep if leave group
| Feature | Group Life | Individual Life |
|---|---|---|
| Underwriting | Simplified/group | Full individual medical |
| Portability | Limited (conversion) | Fully portable |
| Cost | Lower | Higher |
| Coverage amount | Limited | Unlimited (based on needs) |
| Cash value | Usually none (term) | Available (permanent) |
| Ownership | No ownership rights | Own the policy |
| Premiums | May increase | Level (whole life) |
| Customization | Limited options | Fully customizable |
| Beneficiary | Insured chooses | Owner chooses |
| When terminates | Leave employment | Can keep for life |