Breeze Logo

Group life insurance: What everyone needs to know in 2021

Access to group life insurance at work is a nice benefit to have that shouldn't be passed up — but rarely is employer-sponsored coverage sufficient by itself.

According to the Bureau of Labor Statistics, 74 percent of all full-time workers have access to employer-sponsored group life coverage. About 60 percent of all U.S. workers can get group life insurance through their employment.

Group life insurance, like any type of insurance, raises a lot of questions:

  • Should you sign up for group life insurance if your employer offers it?
  • Do you need group coverage if you have an individual policy?
  • Does having group coverage eliminate the need for an individual life insurance policy?
  • Should you have both types of coverage?

Here is an overview of how employer-sponsored coverage compares to individual coverage that should help answer your questions.

What is group life insurance?

If you have a full-time job, there’s a good chance you have the option of getting life insurance coverage as part of a group plan. Participating in a group life insurance plan is a good way to supplement your coverage at a reasonable cost. Therefore, if it’s offered by your employer, you should sign up for group coverage. But you should also own an individual policy to ensure that you have adequate coverage in the event you need it.

How does group life insurance work

An employer-sponsored group life insurance plan covers a number of lives. By spreading its risk among several policyholders, insurance companies can charge less in premium for group life insurance.

In addition, most employer group life plans are subsidized by the employer. This means the individuals who are insured pay less for coverage. In many cases, employers pay the full cost.

Group life insurance is easier to get

Group life insurance is easier to obtain because it does not require underwriting. Group life insurance policies are guaranteed issue. This means anybody who signs up and pays the premium can get coverage. Even if you have health issues that would make it difficult to get an individual policy, they won’t affect your ability to be part of the group plan.

With employer-sponsored coverage, your status as an employee automatically qualifies you for coverage, though some plans require you to wait a certain period (such as 90 days) before you qualify.

Group life insurance provides less coverage than individual policies

Group plans are not meant to fulfill all of your insurance needs. They are designed to provide a worthwhile benefit to employees.

Insurers don’t want to take on the risk of providing $1 million policies to people they have not underwritten for risk. Therefore, group policy death benefits are typically capped.

The maximum is usually a base amount for all participants, such as $100,000. Employer policies often limit you to a maximum based on your salary (e.g. 3x your current income).

Depending on the needs of your surviving family, your life insurance may need to be 10 times to 15 times your current income.

So while your group plan can supplement your coverage, it likely will not fully cover you.

Group life insurance doesn’t offer optional riders

Individual life insurance policies offer built-in and optional features that can enhance your coverage. There are riders that can accelerate your death benefit in the event you become terminally ill, offer the ability to add coverage at later dates, or provide benefits in the event you become disabled.

Most group plans do not offer the many choices of riders provided by individual plans.

Group life insurance is not portable

Life insurance issued through a group plan is contingent on being employed by the company. If that changes, you lose your coverage. You may have the option of converting your group insurance into an individual policy after employment ends, but you will be paying a much higher premium.

There is also usually an annual renewal process for group plans. There is no guarantee that the employer, organization, or insurance company will renew the group coverage. At any time, your rates can increase under group insurance.

Individual life policies cannot be changed as long as you own the policy and pay the premium. This includes the premium amount and death benefit. The insurer cannot cancel the policy as long as you pay your premiums.

Is group life insurance taxable?

Since group life insurance is a benefit that is part of your overall compensation, any death benefit paid out could be taxable income to the policy beneficiaries.

The IRS provides an exclusion for the first $50,000 of group-term life insurance coverage. So there would be no taxes owed on a death benefit of $50,000 or less. However, any amount above $50,000 must be included in income, using the IRS Premium Table. The excess benefit is also subject to Social Security and Medicare taxes.

If you get group life coverage paid by your employer to cover a spouse or dependent, any benefit over $2,000 is taxable.

If you as the employee pays the full cost of the group insurance plan set by the insurance company, then the death benefit isn't taxable.

[ Related Read: Is Life Insurance Taxable? ]

How to get group life insurance

If your employee benefits package includes group life insurance, you will typically be able to sign up in the plan upon getting hired. If you decline coverage when you join the company, you may have another chance during your company’s annual benefit open enrollment period. The open enrollment period may also enable you to increase your life insurance coverage each year, though that option may be subject to a cap.

Often, employers provide an automatic death benefit to all employees that they don’t have to sign up for. The employer pays the full cost of this coverage. The coverage amount is either a set amount for all employees or an amount equal to each employee’s annual salary.

Some employers also offer supplemental group insurance. This typically allows you to buy additional coverage beyond what is automatically provided. However, the total amount you can buy without underwriting is capped at a multiple of your annual salary. For example, if you earn $50,000 and your supplemental plan says employees can buy 3x their salary, then you could only get $150,000 in coverage on a guaranteed issue basis. If you wanted to buy more, you may have to go through simplified or full underwriting.

Some employers also provide accidental death and dismemberment coverage. This increases the death benefit on your group policy if your death occurs because of an accident.

If you can sign up for free or low-cost life insurance through your employer, you should take advantage even if you have an individual policy. It won’t cost you much, but the benefit can provide a valuable supplement to your beneficiaries.


Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.