What is Group Term Life Insurance?

It's a great employment perk, but it might not be enough.

Team LemonadeTeam Lemonade

Group term life insurance, also known as employer-sponsored life insurance, provides coverage for a group of people—usually employees of the same company. In other words, it’s the kind of life insurance you might receive as a benefit at your job.

It’s a common employee benefit you may not even be aware you have—57% of private companies and 83% of state and local governments offer life insurance as an employee benefit. 

This type of insurance product, which is often free and easy to qualify for, can be one important part of the benefits package, providing peace of mind to employees and their families in case of accidental death.

But that doesn’t mean employer life insurance is enough to cover you and your family’s financial needs, mainly because the potential payout may be much more modest than other types of insurance. In that case, you might want to explore other options—like Lemonade’s term life offering, which you can apply for by clicking below.

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How group term life insurance works 

Group term life insurance is a type of life insurance offered by many employers, and by some unions and trade organizations. Coverage is typically for a set period of time, such as one year, and the premium is paid by the employer. 

Depending on the specifics of the contract, the amount of coverage could range anywhere from one to two times an employee’s annual salary, or up to a specific limit (like $50,000).

Companies may also opt to offer supplemental plans that give employees the right to choose, at their own cost, additional coverage up to 15 times their annual salary. 

With group term life insurance, your employer pays the premiums to keep the policy active. Unlike permanent life insurance, there’s no cash value and the policy will expire once the term is up. If you were to pass away while the policy was active, the insurer would pay a death benefit to your designated beneficiary

Group term life insurance is not taxed up to $50,000, meaning that the premiums and death benefits are paid out tax-free up until that amount. If you have coverage over $50,000, the IRS considers it a taxable benefit.

Pros and cons of group term life insurance 

There are several advantages to group term life insurance.

  • It’s an attractive way for many employers who want to provide their employees with a cost-effective insurance option
  • It can provide financial security for families who may be dependent on an employee’s income
  • Most group term life insurance policies don’t require a medical exam to qualify; if you sign up for supplemental coverage, your premium will be deducted automatically from your paycheck

But it’s also important to consider the downsides, too.

  • The coverage amount—the amount of the death benefit your beneficiaries would receive if you were to pass away during the term—is likely smaller than other types of life insurance
  • If you switch jobs, you’ll most likely lose coverage!

That said, some policies do have a portability feature, which allows you to take their coverage with them if they leave the company. This means that an employee can cash in their policy at any time, as long as it is within the terms of their contract with the life insurance company. 

What coverage do I need? 

Before signing up for group term life insurance, it’s important to read and understand the policy agreement so that you know what is covered and what is not. You may be subject to certain eligibility requirements, like working a specific number of hours per week. 

Signing up for employer life insurance is often automatic during open enrollment, but if you want supplemental coverage, you’ll have to opt in yourself. In some cases, you’ll be able to change your coverage limits—for example, if you got married or recently had a baby.

The amount of group term life insurance you need will depend on your individual circumstances. Generally, it’s recommended you have enough coverage to replace your salary for at least ten years in the event of an unexpected death.

Consider any outstanding debts such as a mortgage or student loans when determining the amount of coverage you need. It’s important to consider all these factors when choosing your group term life insurance policy so that you and your family are adequately protected in the event of an emergency. 

How to decide if you should get group term life insurance 

There are few reasons not to sign up for group term life insurance. It’s a very easy and affordable way to provide financial security for your family and loved ones. If you have dependents that rely on your income, then it’s definitely worth considering getting group term life insurance. 

However, it’s often not enough to fully cover you and your family’s financial needs. For example, if you earn $75,000, it’s recommended you have $750,000 in life insurance coverage, much higher than the average group life insurance coverage amount of $50,000.

What’s more, you’re at risk of losing coverage if you switch jobs, and it may be difficult to find a new policy that offers the same benefits or coverage. Life insurance premiums become more expensive as you age, so you may have to pay more for insurance than you did on your group plan.

Group term life insurance can just be one piece of your overall financial plan. It’s easy to supplement your group policy with other coverage.

The term life insurance offered by Lemonade doesn’t require a medical exam, and can provide coverage of up to $1.5 million.

Having an individual policy ensures you won’t be cut off from coverage if you switch or lose your job. If you’re interested in Lemonade’s term life offering, you can start the 100%-digital application process by clicking on the button below.

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Please note: Lemonade articles and other editorial content are meant for educational purposes only, and should not be relied upon instead of professional legal, insurance or financial advice. The content of these educational articles does not alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. While we regularly review previously published content to ensure it is accurate and up-to-date, there may be instances in which legal conditions or policy details have changed since publication. Any hypothetical examples used in Lemonade editorial content are purely expositional. Hypothetical examples do not alter or bind Lemonade to any application of your insurance policy to the particular facts and circumstances of any actual claim.