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Life Insurance Basics

Understanding group term life insurance

Knowing the ins and outs of group term life insurance can help you understand what kind of coverage could work for your needs.

Everything you need to know about group term life insurance

There’s peace of mind in knowing that your family will be taken care of in the unfortunate event of death. But choosing the right life insurance policy can be challenging and expensive – that’s why many employers offer cost savings with group term life insurance policies that provide protection to you at little to no cost. Learn how to break down what group life insurance is and identify the benefits and potential drawbacks so that you can make the best decision for yourself and your family.

What is group term life insurance?

Group term life insurance provides life insurance coverage to multiple people under a single contract. These plans are commonly issued directly to the employer, who then offers the coverage to their employees as a benefit. Many employers offer basic coverage as part of their benefits package with the opportunity for their employees to gain supplemental coverage for themselves or their family.

What are some of the benefits of group term life insurance?

  • It’s usually inexpensive since it’s a benefit from an employer or a membership group
  • May include coverage for spouses and dependents
  • Getting coverage is convenient because it is offered through an employer or a membership group

What are some of the potential drawbacks of group term life insurance?

  • There may not be enough to cover costs of unexpected death
  • Your future costs may be higher
  • There’s limited tailoring to your specific needs

Should you add voluntary group term life insurance to your plan?

The benefits of group term life insurance might not be enough to give you complete peace of mind, which is why many employers also offer voluntary group term life insurance as a supplement to their standard group term life insurance plans. These policies come with many of the same conveniences as the standard group term offerings.

Voluntary group term life insurance typically provides you with multiple levels of coverage, allowing you to tailor your policy to your unique needs, whereas all employees have access to the same level of group term life insurance. Because your premiums are lower and medical checks are usually unnecessary, voluntary group term insurance policies can be a great option, especially if you're older or have existing health issues.

Understanding the main differences between group term life insurance, term life insurance, and whole life insurance

Group vs Term Life Insurance

We’ve already discussed the basics of group term life insurance, so we’ll dive right into term life insurance. Term life insurance provides your beneficiaries with the tax-free funding needed for things like funeral costs, income replacement, education, and debt. With these policies you select a length of time to be insured, usually from 10 to 30 years, and during that time it provides financial protection for your loved ones as long as the policy remains in force. Once the term has expired, you may have the choice to renew your coverage, but doing so will often result in a considerable premium increase. Depending on the type of term life insurance you have, you could have the choice to change it into a permanent life insurance policy.

One of the biggest differences between group term life insurance and whole life insurance is that whole life insurance is intended to provide coverage for the rest of your life. It offers both cash value and a death benefit. Depending on the terms of the policy, you might be able to borrow against your cash value to cover immediate expenses or let it grow at a fixed interest rate over time.

Essentially, group term life insurance offers the lowest premium but is tied directly to your employment or membership to the group, while individual term life insurance is sold directly from the insurer to you as an individual. Whole life insurance differs from them both because it provides permanent coverage at a higher premium.

How does group term insurance work?

Group term life insurance policies are generally offered to employees who meet specific requirements such as having permanent employment. Group term life insurance coverage may be changed during an open enrollment period or in response to certain qualifying life events like loss of coverage from another plan, changes within your household like getting divorced or having a baby, or changes in residence.

The typical level of coverage is often equal to your salary. Most of the time, employers cover all basic insurance costs. Additional sums are typically offered in multiples of your annual income for an additional premium that you’re responsible for. Under this plan you’ll also designate beneficiaries that will collect the funds upon your death.

When should you think about an additional policy?

Choosing life insurance coverage isn’t a one size fits all decision – it requires careful planning tailored to your unique circumstances. Consider how much you would need to pay off outstanding debts, including funeral costs. Think about your dependents and if you planned to fund their college education. You should also consider how much funding you have available to date. These are all things that should be considered when deciding whether you will need an additional policy. Using free online tools can help you evaluate your family plan and calculate your needs.



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