What Type of Insurance Is Group Life Insurance?
Group life insurance is a form of term life insurance, meaning that it does not accumulate cash value but pays a death benefit to a designated survivor. Term insurance is purchased for a set number of years, although it usually can be renewed. The advantage of group insurance, which has been sold since 1911, is lower rates.
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Groups
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For insurance purposes, there are many types of groups, such as employees and members of associations and organizations in both the public and private sectors. Most group plans also will provide coverage for family members.
Qualifications
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Group life insurance costs less than individual policies because the members--who vary in weight, age and health status--are assessed for risk on a collective basis. Many applicants who would not qualify individually can obtain group insurance. Even so, there are questions about health status and a height/weight table on the application, and not everyone will be assessed the same. The assessments may cause the underwriter to limit the amount of insurance that can be purchased or charge a higher premium.
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New type
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A popular new type of group insurance is available from a few companies, such as Liberty National Life Insurance Co., headquartered in Birmingham, Alabama. This new type has two main advantages: The premium is paid pre-tax by payroll deduction, and the insured owns the policy.
Section 125
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Section 125 of the Internal Revenue Service Code allows organizations with more than 10 full-time employees to offer additional benefits not paid by the employer under what is called a cafeteria plan. It applies to all workers and lets them choose between two or more insurance benefits and pay the group rate by pre-tax payroll deduction. Participation is voluntary.
Benefits
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Group policies are owned by the group. The policies usually end or their benefits are reduced when a person leaves. However, someone with the new type of policy who leaves or retires simply uses a different payment method for the premium, which does not increase. The death benefit does not decrease, and the insurance is in force through age 99.
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