What is Group Term Life Insurance?
Group term life insurance is affordable short-term life insurance that is usually part of an employee’s benefits package. Employers may offer group term life insurance for free or at a low cost, making it an affordable life insurance option.
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What’s The Main Benefit of Group Term Life Insurance?
The reason this is such an affordable life insurance option can be explained by the name: group life insurance is insurance that’s purchased to cover a group of people instead of an individual. In this instance, the purchaser is your employer and the group receiving coverage is their employees. Depending on your company’s policy, they’ll either ask for a small amount of money to cover their costs or offer it to you at their expense.
How Does Group Term Life Insurance Work?
When you receive group term life insurance for employees, it provides you with a base level of protection in the form of a cash benefit for beneficiaries in the case of your death.
Duration of Coverage
Your group term coverage ends either at the end of the term, potentially when you leave your place of employment, when you stop making payments, or when you pass away. Your beneficiaries will only receive the death benefit if you die during the term of your policy.
Additional Policy Benefits
Group term life insurance can include features like continuation options for employees who change jobs or retire, in addition to waived premiums for disabled employees.
One add-on that often leads to confusion is the option for “dependent coverage.” Group life insurance ensures that your dependents would receive benefits in the unexpected event of your passing, enabling them to sustain themselves for as long as they’re covered per the policy. Dependent coverage is an add-on that means you would receive an amount of money in the event that one of your dependents passed away.
If you choose this add-on for a spouse, this money could be used to help you sustain yourself in the short-term as you transition to a single-earner family. When this coverage is added on for a child, it’s often used to cover expenses associated with funeral costs or bereavement leave. Dependent coverage typically comes at the cost of additional premiums and is not offered standard in employer-sponsored life insurance.
Benefits of Employer-Provided Group Term Life Insurance
- Free or Low Cost: When individuals receive affordable life insurance through their employers, the cost is significantly lower than if they sought out term life insurance on their own.
- Easily Accessible: Group life insurance as part of a benefits package makes it easy to sign up for coverage.
- Dependent Coverage: Many companies allow you to add additional coverage for your dependents.
- No Medical Exam: In most cases, enrollment in group life insurance doesn’t require a medical exam.
Do I Need Additional Life Insurance Coverage?
If you don’t believe that the standard group term life insurance policy adequately covers your family’s needs, you may want to look into additional coverage.
Your options are additional group term coverage or supplemental coverage. Additional group term coverage means you purchase an increase in coverage on top of what you’re already receiving through your existing group term policy. Whereas, supplemental coverage refers to an additional policy you purchase on top of your existing group term policy. While you can purchase supplemental coverage on your own, it can also be employer sponsored.
While supplemental coverage is an additional policy, it acts as an enhancement to the coverage already offered to you by your employer’s standard group term life insurance. If you need an additional policy that offers a completely new term of coverage or benefits, your employer may offer voluntary life insurance.
Voluntary life insurance is an entirely new policy that offers benefits that may not be offered by your group term life insurance or supplemental coverage. People will often purchase voluntary life insurance because it offers whole life coverage or accumulates cash value over time, which is not standard for most group term life insurance policies.
What Can Add-On Life Insurance Options Cover?
- Funeral and Burial Costs
- Medical Bills
- Mortgage and Housing
- Income Replacement
- Payment of Outstanding Debts
- Education Expenses
- Child and Elder Care
- Support For Special Needs Dependents
How Do I Calculate My Life Insurance Needs?
The question of how much life insurance you need can be answered by crunching a few numbers. You’ll want to consider your current income, assets, debt, and future long-term expenses to find that amount. While we provide a convenient Life Insurance Needs Calculator, you can also do it yourself.
Standard Amount of Living Method
Calculate the cost of living expenses that your beneficiaries would need to maintain their standard of living after you die.
DIME Method
- Debt: Add up your existing debts and estimated final expenses, including funeral costs
- Income: Figure out how many years your family would need your financial support and multiply your income by that number
- Mortgage: Determine how much money you would need to pay off your mortgage
- Education: Estimate how much your children’s college tuition will cost
Once you’ve calculated your debt, income, mortgage, and education costs, add them all together to see how much life insurance coverage you need.
Long-Term Financial Obligations
Add up your long-term financial obligations including your mortgage and future college expenses for any children and subtract that number from your total assets, including investments and savings. The amount that remains can be a simple estimate of your coverage needs.
Buy Coverage Equal to Ten Times Your Income
A simplified way of determining your life insurance needs is to buy life insurance coverage that’s ten times your income. If you have children, consider adding an additional $100,000 for each to cover their educational needs.
Find a policy that works for you
There are a range of affordable Fidelity Life products to choose from based on your situation and financial responsibilities.
Is Group Term Life Insurance Taxable?
Group life insurance tax rules vary depending on the amount of coverage and how your family receives your death benefit.
Taxable vs. Non-Taxable Coverage
Whether or not your group term life insurance policy is taxable depends on the amount of coverage your employer provides. If you receive up to $50,000 in coverage, then it will be excluded from your taxable income.
If your employer offers you a heftier term life policy with over $50,000 in life insurance coverage, your employer must include that coverage benefit as a part of your salary.
Death Benefit Tax Implications
If you decide to issue the death benefit to your beneficiaries in installments instead of a full sum payment, the funds can be taxed. When you opt for smaller payments over time, the principal amount of the benefit is held in an interest-bearing account and disbursed over several years. The accumulated interest in that account is what will be taxable.
The IRS can also tax your group term life policy if the death benefit becomes part of your estate. As of the writing of this article, if your estate’s total taxable value exceeds the federal estate tax exemption limit of $13.6 million, the IRS can charge an estate tax.
Alternatively, if you leave proceeds to your spouse that exceed the limit, they’re usually exempt from estate taxes.
What Are My Additional Coverage Options with Fidelity Life?
Fidelity Life offers additional term life and whole life insurance policies that could help provide additional life insurance options.
RAPIDecision® Life
RAPIDecision® Life is a term life policy that offers quick decisions on your application, terms ranging from 10 to 30 years, and coverage up to $2 million.
RAPIDecision® Senior Life Term
RAPIDecision® Senior Life Term is an affordable term policy for seniors ages 50–70, featuring fast coverage, level premiums and coverage lasting between 10–30 years.
RAPIDecision® Senior Whole Life
RAPIDecision® Senior Whole Life is a senior whole life insurance policy that provides level premiums, builds cash value, and never expires. It’s ideal for those between 50 to 85 who need $10,000 to $150,000 worth of coverage.
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At Fidelity Life, we make the process of getting the life insurance you and your family need simple. It’s easy to get your quote, apply and buy. Secure a life insurance policy for tomorrow so you can start living today.
At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible. We encourage you to speak with your insurance representative if you have additional questions and make sure you read your policy contract to fully understand your coverage.
