What Is A Group Life Insurance Policy?

Rebecca Parson
Rebecca Parson

Rebecca Parson

Author

Rebecca Parson is a financial and tech writer with 10 years of experience writing about topics such as life insurance, commodities investing, and the SaaS industry. She has a master’s degree from Johns Hopkins University and a bachelor’s degree from the University of Mary Washington. Her writing has appeared at money.com, sacbee.com, cart.com, herodevs.com, blanchardgold.com, and more.

Brian OConnel
Brian OConnel

Brian O'Connel

Contributor

Brian O’Connell has been a contributing writer for U.S News & World Report since 2016. A former Wall Street bond trader and the author of two best-selling books; “The 401k Millionaire” and “CNBC’s Creating Wealth”, he has 20 years experience covering business news and trends, particularly in the business and financial sectors. He believes education is the best gift a financial consumer can receive – and brings that philosophy to every story he writes. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more.

By Rebecca Parson, Brian O'Connel
Author, Contributor, Life Insurance

Key Takeaways

  • Group life insurance is term life insurance from your employer, labor union, credit union, or another organization.
  • It’s inexpensive or free.
  • A group life insurance policy’s death benefit is usually low compared to individual life insurance policies.
  • You don’t need a medical exam to qualify for group life insurance. 
  • You can sell your group life insurance policy by doing a life settlement.

What Is Group Life Insurance?

Group life insurance is a policy offered by an employer, labor union, or other organization to its employees as a perk. These policies are cheap or free for employees but usually have a low coverage amount. 

Typically, the cost of coverage is distributed evenly among group members, so it’s more affordable than individual policies. However, the coverage may stop when the individual leaves the group or employment.

How Group Life Insurance Works

Group life insurance is a contract that provides life insurance coverage to a group of people under a single policy. Companies buy group life insurance on a wholesale basis for their members, resulting in much lower costs per individual compared to individual policies.

People covered by group life insurance may not have to pay out of pocket for the benefits. However, if you want additional coverage, you can opt to have your portion of the premium deducted from your paycheck. Similar to standard insurance policies, insured individuals must designate one or more beneficiaries when the policy starts, and they can update beneficiaries at any time during the coverage period.

Group life insurance is term life insurance that is renewable annually during a company’s open enrollment period. This differs from whole life insurance, which provides lifelong coverage.

An employer or organization buys the group life policy for its employees or members and keeps the master contract. You’ll get a certificate of coverage, which you’ll need to present to a new insurance company if you leave the organization and end your coverage. 

Coverage

Most employee group life insurance policies have a death benefit between $10,000 and $50,000. However, some employers determine the coverage amount based on your salary and offer coverage worth one or two times your annual earnings.

Many employer-sponsored life insurance plans also include an accidental death and dismemberment (AD&D) rider for no extra cost to the employee. AD&D policies pay out if the insured has an accident resulting in death or permanent injury.

Group life insurance may only be available to full-time employees or those working a minimum number of hours per week. You won’t need a medical exam to qualify. Generally, a group life policy lasts as long as you are employed or a member of an organization offering coverage. Your coverage will likely end if:

  • You quit your job or start a new one.
  • You are fired.
  • Your organizational membership ends.
  • You stop paying dues or are not in good standing.

Since coverage can end, group life insurance is considered term life insurance rather than permanent life insurance. Most policies are renewable annually and do not have cash value. However, some organizations may offer group universal or variable universal life insurance that builds cash value. Others might provide policies lasting a fixed number of years, such as a 30-year term life policy, instead of renewing annually.

What Happens to Group Life Insurance Coverage After I Retire?

Group life insurance ends when you leave the organization, either immediately or after a short grace period. This applies if you are fired, quit, change jobs, or retire. When you retire, you might be able to convert your group term life insurance to an individual policy. However, employers usually won’t cover your premiums after retirement.

Advantages and Disadvantages of Group Life Insurance

ProsCons
Inexpensive or freeLow death benefit
No medical exam neededMay not be portable
No cash value

The main advantage of group life insurance for employees is its low cost. Group members usually pay very little or nothing, with any premiums deducted directly from their gross earnings. Qualifying for group policies is simple, and coverage is guaranteed for all members without a medical exam.

However, the low cost and convenience come with limitations. Group life insurance typically provides only basic coverage, which might not be enough for policyholders’ needs. Common coverage amounts are $20,000, $50,000, or one to two times the insured’s annual salary. If you have a policy through work, you may want to supplement it with a separate individual policy for more comprehensive coverage.

Another downside is that, because the employer controls the policy, they can increase the premiums or cancel the policy. But if you leave your job, you may be able to continue the policy on an individual level. It will cost more but will still not require a medical exam.

Some organizations offer the option to buy additional coverage, which is often portable between jobs. Unlike the basic group policy, extra coverage might require answering a medical questionnaire — but it still won’t require a physical exam. This makes it a good option for people with health issues who might struggle to get affordable individual policies.

What Types of Group Life Insurance Are There?

The most prevalent type of group life insurance is group term insurance, which renews annually. This insurance only offers a death benefit and is the most affordable option. 

Group universal life insurance costs more but allows you to accumulate cash value along with the death benefit. Variable group universal life insurance is similar but lets you invest the cash value.

Can I Convert My Group Life Insurance to Individual?

Yes, you can usually convert your group life insurance to individual in a process known as conversion. There are various restrictions, however.

Firstly, the timeframe for conversion is often limited. You have a specified period, usually within 30 days following termination of employment or departure from the group, to convert your group policy to an individual one. Missed deadlines can cause loss of coverage.

Secondly, the conversion process usually leads to higher premiums. Costs for individual life insurance policies are typically higher than group rates, primarily because the risk is not spread across a group.

Thirdly, certain types of coverage might not be available for conversion. For instance, some additional benefits or riders that were part of the group policy may not be included in the individual policy.

Lastly, conversion rights may be conditional, depending on the policy terms or the reason for termination of the group coverage. Some policies only allow conversion if employment or group membership is terminated involuntarily.

Can I Maintain My Group Policy After My Employment Is Terminated?

In most cases, maintaining your group life insurance policy after termination of employment is possible, but it largely depends on the policy terms set by your insurance provider. Some providers allow for a continuation of the policy under a “portability” option. This option lets you retain your group coverage but at a higher personal cost. 

Alternatively, you may convert your group policy into an individual one. Keep in mind, however, that you usually must act within a specific period after the end of employment, often within 30 days. 

Does The Federal Government Offer Group Life Insurance Policies?

Yes, the U.S. federal government offers group life insurance policies through the Federal Employees’ Group Life Insurance (FEGLI) Program. The federal government established this program in 1954. 

FEGLI is the largest program of its kind in the world, covering over 4 million federal employees and retirees, as well as many of their family members. However, it’s important to note that the specifics of coverage, rates, and eligibility can vary, and it’s always recommended to consult with a human resources representative or the Office of Personnel Management for detailed information.

Can I Sell My Group Life Insurance Policy?

Yes, you can sell your group life insurance policy, but the process is more complex and less common than selling an individual policy. If you convert the policy to a permanent policy, you can sell it as a regular life settlement. If you can’t convert the policy, you can sell the policy’s benefits. 

Pricing on these policies is often less competitive. When trying to sell a group life insurance policy, speak to a life settlement broker with experience handling these types of policies. 

Can I Sell My FEGLI?

Many funders will purchase a FEGLI provided the face value of the policy is sufficient and the age and health of the insured are within their guidelines. Offers for a FEGLI are typically not as high as those for more typically transacted policies. 

FAQs About Group Life Insurance

What Is the Purpose of Group Life Insurance?

The purpose of group life insurance is to provide affordable and convenient life insurance coverage to a group of people, typically employees, by offering a cheap or free policy with no medical exam.

What Is the Difference Between Life Insurance and Group Life Insurance?

The difference between life insurance and group life insurance is that you buy life insurance individually and you get group life insurance from an employer or other organization. Group life insurance is cheaper and provides more limited coverage.

Does Group Life Insurance Pay Out?

Yes, group life insurance pays out a death benefit if the insured dies while the policy is active. Beneficiaries can use the death benefit money in any way.

What Are the Disadvantages of Group Life Insurance?

The disadvantages of group life insurance are that its death benefit is small and it doesn’t usually have cash value, which means you can’t borrow against or withdraw money from it.

Is Group Life Insurance a Good Deal?

Yes, group life insurance is a good deal compared to individual life insurance, and people who can’t otherwise qualify for life insurance can get it without a medical exam.

Can I Cash Out My FEGLI Life Insurance?

Yes, you can sell your FEGLI life insurance through a life or viatical settlement. You can’t borrow against or withdraw from it because it doesn’t have cash value. 

In Conclusion

Reach out to us today to discuss your group life insurance policy.

Sell your life insurance policy for cash.

See if you qualify now.

We’re here to help. Speak with a Policy Specialist today at +1 848-456-8333