There are many employers who provide group life insurance as a free benefit to their employees. Also referred to as group term life insurance, all you are required to do is sign up for their benefit. Sometimes the enrollment is automatic, but you might be concerned and wondering if group term life is enough.
Should you buy an additional life insurance policy outside of work? You may feel that you’re set with the supplemental life insurance through an employer. We’re going to go over everything you need to know about group life insurance and explain why you might be at risk with only a group life plan.
What you’ll learn:
what is group term life insurance?
Group term life insurance is a type of life insurance policy that an employer or company offers to their employees. In the majority of cases, the company will pay for all or a percentage of the group life insurance premium.
Group term life insurance is a benefit and many employers and companies provide this benefit at no cost and a base coverage amount. In addition to the base amount, the company may also offer you the option to buy additional supplemental group life coverage with a payroll deduction.
Group Term Life Insurance Advantages
There are several advantages when buying a supplemental group term life insurance policy from your employer.
For many employees, this is by far the number one advantage of a group life insurance policy? If you have any health condition or high risk situation that would result in being declined life insurance with a traditional policy — a group term life policy might be your only opportunity for coverage. If you can qualify for traditional coverage, your rate might be much higher than group coverage depending on the specifics of your health condition.
Group term life insurance may actually be a good deal. Group life insurance can be cheaper than buying your own individual policy. It will typically depend on your age when you get it. Rates increase quickly when you get older. Most group life policies are based on rate bands. These rate bands have a specific cost and go up in price for each band. For example, a group term life policy could have rate bands every 5 years. The price of the group life policy would change at ages 25, 30, 35, etc. As we mentioned previously, your rate will probably be a good deal when you’re younger, but will increase quickly later on.
Having a simple and convenient way to secure coverage quickly is a big advantage with group term life insurance. Buying group life coverage from your employer might be the simplest way to provide financial protection for your family. Group policies are a type of no medical exam term life insurance — so they’re very convenient and simple to purchase.
Group Term Life Insurance Disadvantages
The biggest disadvantage of group life insurance is the possible lack of transferability. In other words, will you be able to keep your group life insurance if you are fired or leave your employer?
The ability to convert your group life insurance policy to your own personal individual policy may or may not be an option. If it is possible to change to an individual policy, the price tag might be much higher than your group coverage.
With a group life insurance policy, you won’t have all of the options that an individual policy can offer. Your employer may only offer a basic term life policy with only 1 or several term length options. With an individual policy, you can choose any term length or buy a permanent life insurance policy for lifetime coverage. Some examples of permanent policies are whole life, final expense, universal life and guaranteed universal life insurance. Permanent products can grow cash value and are more complex compared to term life. Make sure to consult a financial advisor or independent life insurance agent if you’re thinking about these options.
Lastly, the amount of coverage you get with a group term life policy can be limited. You might not be able to buy the amount of life insurance coverage that you need to protect your family. For example, your employer may match your salary — but you’ve calculated that you need 10xs your salary to cover your mortgage, funeral costs, debts, college for your children, etc.
How Much Life Insurance Should I Have?
Finding out how much coverage you need is one of the most important steps in the life insurance buying process. Everyone is unique in their situation and coverage needs. You’ll need to calculate what your life insurance policy will be paying for when you die.
Will it pay for current and future debts like your mortgage? Future income? College tuition for your children? Medical bills? These are just a few things to think about what your policy will help cover if you pass away.
One of the easiest ways to calculate your needs is with our online life insurance needs analysis calculator. It’s simple to use and gives you a quick calculation of how much life insurance you may need based on your goals.
How Expensive is Group Life Insurance?
The cost of group term life insurance will depend on your employer. Every company will be different in their group life options and prices.
In general terms, a group life insurance policy will typically be less expensive for younger employees. As you age, your rates will increase quickly. There are a few reasons for this.
- Age: Life insurance gets more expensive as you age no matter if you buy group life insurance through work or on your own with an individual life insurance policy.
- Employee Pool: Group life insurance policies are guaranteed. This means all the employees are provided automatic coverage no matter what their health status is. The group premiums and the price of these policies reflect the pool of employees. In other words, group policies are sold knowing that some of the participants will be healthy, sick, and very sick — and the premiums reflect this knowledge.
If you’re young or in good health, your premium payments are pretty much subsidizing your fellow employees who might be unhealthy and unable to buy an individual policy. This means your group term life insurance policy might be inexpensive if you’re unhealthy, but expensive if your health is fine.
what does GTL mean?
“What is GTL on my paycheck?” Don’t worry if you’re if you’re wondering what GTL means, you’re not alone. This is a bit confusing because your employer is paying for your group term life insurance, but you see a GTL paystub deduction on your paycheck. The reason is that the deduction is for the taxes on your group term life benefit — not the premiums.
Your employer will typically pay for coverage like this: 1 dollar in group life insurance for every dollar they pay you in salary. The 1st $50,000 in life insurance coverage will not be taxable, but every penny over that will. In other words, the U.S. government will not tax your group life insurance policy if it doesn not exceed a total coverage amount of $50,000.
So if you have a salary of $80,000 and your employer pays for $80,000 in coverage — you’ll be taxed on $30,000. This may show up on your stub as “GTL Paycheck” or “GTL Deduction”.
Group Term Life Insurance is Great When…
A group term life insurance policy is a great option for anyone who has serious health conditions or is uninsurable. These policies are very convenient and easy to purchase through your employer. If you’re healthy or need more coverage than your employer provides, an individual life insurance policy will probably be a better deal. Lastly, a group life insurance policy isn’t very portable. It’s pretty much handcuffed to your employer and your ability to convert it if you leave your job can be a headache — if that’s even possible.
Should you buy a personal life insurance policy?
Buying your own individual policy is always a good strategy for peace of mind. You’ll have more options available to you and it can be inexpensive too. Supplemental life insurance through your employer is a great benefit. However, you need to look at group life as a job perk and not coverage that is actually yours.
You might be fired or change careers that may jeopardize your group policy. Your group life insurance policy may only provide a short term benefit that covers final expenses and financial protection for a few years. A personal life insurance policy can provide your family long term financial protection.