For some individuals, discussing the different types of life insurance can be a touchy subject and a bit overwhelming. It’s a topic that requires attention and needs to be seriously contemplated. If you have loved ones who depend on you financially, then life insurance is there to protect them in the event something fatal happens to you.
Life insurance is one of the most common employer-provided benefits. According to the Bureau of Labor Statistics, in 2020 60% of non-government workers had access to employer-provided life insurance, and 98% of those who worked participated in their company plan. Group life insurance is a type of employer-provided insurance coverage. Here is what you need to know about group life insurance and how it works.
Group Life Insurance 101
What Is Group Life Insurance?
Group life insurance is exactly as it sounds; life insurance offered to a group of people. This type of life insurance is coverage that employers offer to employees only. Coverage may be employer or employee paid. Your designated beneficiary would collect a financial benefit upon your death. Spouses and dependents aren’t covered under group life insurance, so many employers offer supplemental voluntary plans for additional coverage of those individuals; however, individual life insurance policies are typically more costly than group life insurance.
Many employers offer a base amount of coverage that is free for their employees, as well as offering options for additional life insurance coverage. Group life insurance is generally part of a complete employee benefits package for many companies and organizations.
How Does It Work?
With group life insurance, the policy owner is typically the employer or organization, and the policy covers the participating employees. Group life insurance still allows the employee to choose their beneficiary. The coverage amount is usually a multiple of their salary, normally equalling one or two times their annual salary.
Under group life insurance plans, the policy typically ends when the employee leaves the company, but in some cases, they might be able to convert the policy to a permanent one or get the chance to renew it.
Group life insurance coverage is usually very cost-effective for employers because the group plan spreads the risk over multiple people which results in lower premiums. Employees get the convenience of employer-paid coverage or coverage that is cheaper than an individual policy.
It’s also easier for employees to qualify for group life insurance than an individual life insurance policy since most group term plans don’t require health assessments or tests. Employees who purchase individual coverage often face premiums contingent on the results of a medical exam, and some might be denied coverage based on the health assessment results.
One of the added advantages of employers providing group life insurance coverage is the tax implications. Group life insurance coverage is deductible by employers as a business expense unless the employer is the beneficiary of the policy. For employees, they can exclude coverage up to $50,000 from their income. Coverage above that amount must be included in an employee’s income and is subject to social security and medicare taxes.
The plan may not discriminate against employees regarding their eligibility to participate or the amount of benefits available to them. If the plan does discriminate in favor of key employees, those employees are not able to exclude their first $50,000 in coverage from gross income.
Group Life Insurance Requirements
In order to qualify as a group life insurance plan under IRS regulations, the plan must meet all of the following conditions:
- The plan must provide a general death benefit that is excludable from the gross income of the beneficiary when paid.
- Coverage must be offered to either all employees or a smaller group of employees only if group membership is determined solely on the basis of the following:
- Marital status
- Union membership
- Job duties
- Length of service
- Participation in an employer’s pension profit-sharing, stock bonus, or accident health plan
- The policy must be carried directly or indirectly by the employer
- The amount of coverage provided must be computed under a formula that precludes individual selection. The formula can be based on factors such as age, years of service, compensation, or position
- The plan generally may not provide a permanent benefit to employees (there may be an exception to this if certain IRS requirements are met)
- Coverage must be provided to a group of at least 10 full-time employees (unless certain conditions set by the IRS are satisfied)
Group Life Insurance With Alltrust
There are many benefits and advantages for both employers and employees when it comes to group life insurance. For employers, it enhances the value of the benefits care package offered and can also increase employee retention. For employees, they get basic life insurance coverage for little to no cost. And employees still have the option to supplement their group life insurance policy if wanted. Life insurance coverage is something that everyone needs to have.
Help your employees understand the importance of having life insurance for the benefit of themselves and their loved ones. It’s also vital to educate employees about the details of life insurance in general and how it works. Increasing awareness of the group life insurance coverage will result in increased participation. Alltrust Insurance is here for all your benefits insurance needs. For more information about providing group life insurance to your employees, contact us today.