Question

What amount of life insurance does group life insurance usually provide?

Answer 1

Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members. It is fairly inexpensive, may even be free, and is pretty common nationwide. It has a relatively low coverage amount and is typically offered as a piece of a larger employer or membership benefit package.

Group term coverage is generally inexpensive, especially for younger people, and participants may not be required to go through underwriting as all eligible employees are automatically covered. However, unlike individual term insurance plans, which typically lock in a rate for 20 to 30 years, most group plans have rate bands in which the cost of insurance automatically goes up in increments, for example, at ages 30, 35, 40, etc. The premiums for each rate band are outlined in the plan document.

While inexpensive, in many cases, the amount of coverage offered by group life insurance may not be enough, and should be combined with an individual plan. Employers or association groups offering the insurance often limit the total coverage available to employees or members based on things like tenure, base salary, number of dependents, and employment statuses such as full-time, associate, or executive, with the amount of available coverage varying by group. Most commonly, employers offer multiples of an employee's salary or fixed amounts, such as $20,000 or $50,000. Many group plans only cover an individual's base salary. Other forms of compensation may be excluded, such as bonuses, commission, reimbursement, or incentives that are reported as income—for example, an auto reimbursement or restricted stock award.