The Definition of Group Life Insurance

A life insurance policy is a contract between you and a life insurance company which specifies that a death benefit will be paid to a beneficiary that you name on the contract. In return, you agree to pay premiums to the life insurance company. If all premiums are paid and the policy is in force, then the policy will pay a death benefit when you die. One type of life insurance you can buy is group life insurance.

Significance

Group term life insurance pools risks with everyone in a group that works for the same employer or belongs to the same trade association. Because of the costs of some types of individual life insurance, group life insurance has become a popular way to purchase life insurance because it is often less expensive than individual policies.

Group Term

Group term is the most common type of group life insurance. Term policies are purchased through your employer, who uses an insurance company to underwrite the policy. You join as a group member and are allowed to purchase an amount of life insurance that normally is determined by your income, your employment position or as a flat benefit.

Group Permanent

Group permanent life insurance is most often universal life insurance. This type of insurance can be more expensive than group term life but has a convertibility option so that when you leave your employment, you can keep your life insurance policy.

Benefits

The benefit of having group life insurance is often in lower premium cost over individual life insurance. Group life insurance also does not require extensive underwriting as an individual life insurance policy does.

Considerations

Before buying a group life insurance policy, consider your needs. While these types of policies can come with lower premiums, they also are limited in their product offerings. Many employers look for basic life insurance offerings when choosing group life insurance. You may also be limited as to how much life insurance you can purchase. If you have a need for a lot of life insurance, group insurance may not allow you to buy what you need.

References

• "Life & Health Insurance, License Exam Manual, 6th Edition;" Dearborn Financial; 2004
• "Practicing Financial Planning for Professionals, practitioner's 10th edition;" Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Ernst & Young's Personal Financial Planning Guide, 5th edition;" Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004