What Is Group Term Life Insurance?

Life insurance is a valuable tool that pays off debt and replaces income when someone dies. While some investors purchase individual term policies, others get group term life insurance from their workplace or other organizations to which they belong. It is usually easier to get approved for these policies since they require fewer exams and medical history qualifications. When buying any life insurance it is recommended to first work with a financial advisor who can help you see what life insurance would be most beneficial for your personal situation.

Term life insurance is insurance that covers you for as long as you make the premium payments. Insurance coverage depends on medical exams, questionnaires and other qualification metrics. The insurance company sets premiums based on your age, gender, your medical records, term of coverage and death benefit. Like most types of insurance, when you stop making payments, the coverage ends.

Group term life insurance takes this concept a step further. By spreading the risk around to all members of the group, there are fewer medical questions and exams. In fact, many groups offer set multiples of your income without any tests or questions. Within those limits, your premiums are set by your age, gender and death benefit.

Since employees change jobs frequently, group term life insurance usually offers “annually renewable” insurance coverage. Policy premiums factor in your age or a band of people of similar ages. Because of this, premiums can change every year and increase over time.

Pros and Cons of Group Term Life Insurance

Pros

The death benefits may increase with higher income
Premiums start out lower than other term insurance policies
No medical exams or questionnaires for most people
Guaranteed insurability up to certain limits

Cons

Premiums increase every year
Policies may not be portable if you leave your job
Limited to a multiple of your income

How Group Term, Individual Term Life Insurance Differ

While there are many benefits of group term life insurance policies, it helps to understand the differences between group and individual term insurance before applying for a policy.

Premium payments: Individual term life insurance premiums are generally constant for a set number of years, then increase annually from there. Most group term insurance premiums increase every year.
Death benefit: Group term policies usually have a maximum death benefit before requiring additional questions and tests. Individual policies generally do not limit the death benefit as long as you can qualify for the policy.
Medical exams: Many group policies offer 3-to-5 times your salary as a death benefit before requiring a medical exam. Individual policies typically require applicants to answer medical questions and submit to an exam for policies of $100,000 or more.
Portability: Individual term life insurance policies remain in force as long as you continue making the premium payments. When you leave your job, not all group term policies are portable. This means that you could lose your life insurance when changing jobs, even if you can afford to make the premium payments.

Is Group Term Life Insurance Right for You?

Group term life insurance is the ideal choice for people who don’t want to undergo medical exams, answer medical questions or that have medical conditions. Groups members receive guaranteed insurability, while they may not qualify for an individual life insurance policy. And premiums tend to be less in the beginning because they are annual renewable instead of having fixed premiums for a set number of years.

For people who are in good health and are fit, an individual term life insurance policy may be a better option. These insurance policies offer lower premiums to people who are in good shape and lower medical risks. However, in order to qualify and get approved, you must subject yourself to intrusive medical exams and questionnaires that some people are uncomfortable with. In some cases, these exams uncover medical conditions that the insured didn’t know existed.

The Bottom Line

Group term life insurance is generally available through your workplace or an organization that you belong to. While there are maximum death benefit limits, qualifying for these policies is usually easier. And most don’t require a full medical evaluation. The premiums start out low and increase over time, which is why many investors choose to purchase an individual term life insurance policy on their own. Consult with your financial advisor about which type of life insurance is best for your situation.

Tips for Choosing Life Insurance

Financial advisors use their expertise to help investors choose the right types and amounts of insurance coverage. They can also shop your application for multiple insurance companies to find the best deal. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investors buy life insurance to cover their financial needs in case they pass away. But, how much life insurance should you buy? Our life insurance needs calculator helps you determine that number based on your age, income, debt and other goals.