What is Group Term Life Insurance

If you are a salaried professional, you may be offered group term life insurance by your employer. It's one of the many types of insurance products that are made available by insurance companies and provided as part of employee welfare package, by an employer. This insurance product, is a part of a larger insurance subset type, called term life insurance. So let us first understand what is a term life insurance.

What is Term Life Insurance?

How does term life insurance work? A term life insurance is substantially different from a whole life insurance policy. A term life insurance offers coverage for a limited term or time span. This means that a term life insurance policy holder's beneficiaries will receive a death benefit amount, only if the death occurs within a specified time span, which could be any number of years. Most importantly, under a term life insurance, there is no payout to the insured, if no claim is made during the specified time span.

This is unlike whole life insurance, where a certain payout is made after the policy term expires. That's why term life insurance policies are cheaper compared to whole life insurance. A term life insurance policy premium needs to be paid every year, to renew the insurance policy. This premium may increase with advancing age of the insured.

About Group Term Life Insurance

A group term life insurance is offered by employers as part of an employee welfare package. It is term life insurance policy that covers a group of people (usually employees) and pays out death benefit in the event of demise of any one of them, to his or her beneficiaries. It tends to be cheaper, compared to an individual insurance policy. In USA, an employer can claim tax deductions for investments in group insurance up to $50,000. However, any amount exceeding this is taxable.

All the features of a term life insurance apply to a group term life insurance too. An employee may contribute a very small portion of its premium, while the major contribution is usually made by the employer. It needs to be renewed periodically through yearly paid premiums. The procedure for payment of premiums and renewal is generally handled by the human resource department of a company, on behalf of the employees. Calculation for group insurance premium is made by insurance companies after an analysis of the degree of risk they will have to take.

Pros and Cons of Choosing One

One of the major pros of this insurance product is its affordability. The premium size for a group term insurance policy is a fraction of what one would have to pay for a whole life insurance policy. The fact that the risk taken by an insurance company is divided over a group, lets them provide a low premium.

The major con of opting for this insurance type is that it is hardly enough to cover expenses of the beneficiaries. The amount is generally quite paltry, compared to whole life insurance or single premium life insurance policies. Second con is of course the limited time span for which the coverage is offered, after which it discontinues, with no payouts.

The amount of payouts that beneficiaries receive in the event of a death, is not at all adequate. Though the payout size may be quite limited compared to a life insurance policy, it can act as a supplementary insurance coverage at best. It is essential that an individual invests in a separate whole life insurance policy, which provides a substantial benefit to dependents in the event of death.