What is group term life insurance?

Group term life insurance is an important type of employee benefit, providing financial security at a price that may fit your budget.

What is group term life insurance?

Life insurance is a product that pays beneficiaries a federal income tax-free lump sum should the insured pass away while the insurance is in effect. Finances are the last thing a family wants to worry about when dealing with a tragic loss, and life insurance can go a long way toward making sure a family can manage. There are many different kinds of life insurance, with an even greater number of customizations. To understand group term life insurance, let’s break down the different components:

Group term life is often a part of employee benefits packages, and there are a number of payment options employers can use. Typically, an employer pays most, if not all, of the premiums, but the employer can also split the cost with employees, or even make it 100% voluntary (paid by employees) to offset costs. These benefits can be a significant non-salary factor in employee satisfaction and feelings of financial security, and employers who aren’t offering life insurance as a benefit may be missing out on a key aspect of recruiting and retaining top talent.

Group term life insurance benefits.

The typical coverage amount is equal to the annual salary of each employee, but an employer can pick different benefit levels. The benefit level can be a flat amount—like $50,000, for example. Often, there is an option for extra coverage if the employee wants to pay the additional premiums. Eligible employees are automatically enrolled; there is usually no medical exam or underwriting.

How does group term life insurance work?

It’s pretty simple, really. A short time after a company or group purchases a policy, coverage begins for all eligible employees. The company pays a monthly or annual premium based on the number of employees and the amount of coverage offered. The company can set eligibility requirements. Usually, every employee who meets the requirements is automatically enrolled in the base coverage, and employees have the option of adding more coverage for additional premiums. Changes in coverage can be made during an open enrollment period or might be affected if an employee has a qualifying life event (like marriage or the birth of a child. 

Is group term life insurance taxable?

A portion of the premium for group term life insurance is often tax-free. This is another attractive benefit that you can offer employees. Up to $50,000 of coverage for each employee is usually considered a tax-free benefit. This makes group term life a particularly attractive benefit for employees. Coverage over that amount must be recognized as a taxable benefit and included on an employee’s W-2 form. 

Also, employers that pay for their employees' benefits may be eligible for tax benefits for the business itself. Consult a tax professional to see what this might mean for your business and your employees. 

Advantages and disadvantages of group term life insurance

Group term life is one of the most common ways to get life insurance, and it makes a fantastic benefit. Usually, all eligible employees are automatically covered. Most group life does not require employee health information or a medical exam (known as underwriting).

Advantages:

• Inexpensive for companies
• Various options to pay premiums
• All eligible employees automatically enrolled
• No underwriting
• Customizable benefit amounts
• Potential tax savings for employer-paid coverage

For many employees, group term life coverage provides an important safety net. It may not be enough, however. Additional coverage may still be needed, either through the group term policy or with an individual policy. Also, since group term life is provided by the employer, people who leave their jobs will likely lose their coverage. 

Disadvantages:

• Some employees (like those who work part-time) may not qualify
• Lack of portability
• Some employees may need/desire additional coverage

Why should businesses offer group term life?

The search for qualified workers is becoming more difficult by the year, and businesses both large and small are feeling the crunch. There’s significant competition for employees across industries. One way to compete is to offer higher wages, but that can make it difficult for many businesses to remain profitable. A preferable plan may be to offer a better benefits package than your competitors. Employers should consider making group term life insurance a part of that package.

An important benefit for employees

Group term life is considerably less expensive per person than equivalent individual policies would be. This can allow employees to get important coverage they might not otherwise be able to afford. Premiums may change based on the type of work and the age of the employees, but they are generally between $0.05 and $0.60 per $1,000 of coverage per employee per month. 

Let’s say you have 20 employees evenly spread from ages 25 to 45. In order to offer $100,000 flat-rate group life insurance, you would expect to pay around $160 per month. This price may fit your budget for the benefit it provides your employees and your company.

Important financial security and peace of mind

The response of employees, especially those with families, to life insurance as an employment benefit is overwhelmingly positive. Many rely on employer-provided coverage as their only form of life insurance, which makes it a powerful retention benefit, since coverage would end if they changed jobs. 

Recruit better talent

When asked, 44% of all workers said that a life insurance benefit was very or extremely important to them or their families.¹ Adding group term life to your benefits package can help you offer an attractive package and recruit the best talent.

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¹“Harnessing Growth and Seizing Opportunity: The future of Workforce Benefits,” LIMRA, April 2022. 

New York Life Group Term Life Insurance is issued by New York Life Insurance Company.

Your employer will notify you if your Group Term Life Insurance program is subject to the Employee Retirement Income Security Act of 1974 (ERISA). 

You should consult with your tax advisor, on the taxability of benefits offered from your employer’s group employee benefits program. New York Life Insurance Company and its employees, agents, and affiliates cannot provide tax advice to you.

In Oregon, the New York Life Group Term Life insurance policy form number is ICC16EB-Life-P.