Group Life Insurance and Your Workplace Benefits
Group Life Insurance (GLI) is usually offered through an employer to its employees as a benefit of employment. GLI is different from individual life insurance, which is written based on a single life, group life insurance is usually written for employee groups and is underwritten based on coverage for all or a large percentage of persons in the employee group.
Is there a cost to the employee to participate in the GLI policy?
Depends on how the employer runs their GLI plan. In a contributory plan the employee group shares the cost, and the insurance company has a minimum requirement that at least ~75% of all employees participate and the cost is paid by each respective employee through automatic payroll deductions based on the amount coverage selected. In a noncontributory plan the employees do not share in the cost, the insurance company requires that 100% of all employees in the group be eligible and the employer pays the full cost of the employees' GLI plan. In both plans, noncontributory and contributory, the plan must be available to approximately all full time actively working employees as the underwriting process looks at the entire employee group at the company to determine risk factors. The insurance company requires that a minimum amount or percentage of the employee group participate in the GLI plan to reduce adverse selection. The employee group must exist for an actual business or organizational purpose therefore an employee group cannot be formed just to obtain GLI. GLI has been formed by organizations such as labor unions, trade associations, fraternal organizations, and trustee groups (established by two or more parties) to name a few examples.
So what are the benefits of having a GLI policy?
There are several benefits to a GLI policy, with a GLI policy each employee does not have to provide evidence of insurability as the GLI policy is underwritten based on the entire employee group. Group life insurance is usually lower in cost to each employee vs individual life insurance policies due to lower costs in administrative, selling, and operational expenses at the insurance company providing the GLI policy. GLI policies are typically issued as annually renewable level term insurance providing a fixed amount of coverage throughout the term of the contract which typically allows each respective employee to adjust the amount of coverage each year during the open enrollment benefits period with their employer. In a GLI plan the employer is the policy owner, the employee receives a certificate of insurance showing coverage and names a beneficiary. GLI policies also allow for a conversion privilege, if an employee decides to leave the company the employee may convert their group life insurance coverage into an individual whole life policy without having to show proof of insurability during the conversion period.
Terms to Know
Term | Definition |
Certificate of Insurance | certificate of insurance is a document issued by the insurance company used to verify the existence of insurance coverage. |
Contributory Plan | is an employee benefit plan where each individual employee pays their benefit expense based on the amount of coverage selected. |
Conversion Privilege | allows an insurance policy to be converted to a new policy that will continue the existing insurance coverage. |
Noncontributory Plan | is an employee benefit plan where the employer pays the expense of the employees' benefits. |
Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply.