When a group of people purchase term life insurance together, the policy is known as group term life insurance. Many employers offer group term life insurance to the people who work for them.
Most life insurance companies prefer to sell group term life insurance instead of individual policies. Why? Because when they provide coverage for an entire group, the administrative processes are simplified. There is less paperwork to complete, and fewer inquiries to respond to, and fewer changes to implement. Consequently, many companies offer special incentives and discounts for group insurance policies. This makes group life insurance significantly cheaper than individual policies.
Just like individual term life insurance policies, group term life insurance policies pay benefits to the designated beneficiaries when the policy holder passes away. When it is an employee-sponsored group insurance policy, the benefits are often calculated as some multiple of the employee’s salary, but this isn’t always the case. However, it makes sense to tie the amount to the employee’s earnings, because the surviving family members will be accustomed to that level of income and their financial security depends on having that amount be maintained.
Employers offer group term life insurance as a benefit of working in their company. One of the primary reasons for doing this is to be competitive in recruiting and hiring the best qualified individuals. Many potential employers ask about life insurance before they are hired, so that they can compare and contrast what is offered by different potential employers. Since group life insurance is relatively inexpensive, companies know that they can pay for relatively inexpensive monthly premiums and thereby attract the best candidates. And those candidates know that if they were to seek the same coverage through an individual policy, they would most likely have to pay much more.
Many group term life insurance policies offer the policy holders the option of easily converting their coverage into an individual life insurance policy. This exists mostly for the benefit of individuals who leave their jobs and decide to no longer work for the company. This allows those people to have continuous coverage for their families, at least until they find another job that offers group life insurance.
Another reason that employers like to offer group life insurance policies to their employees is that the payments are tax-deductible.
Finally, most group life insurance policies do not require any medical exams. Consequently, many individuals who are not eligible for individual life insurance policies due to pre-existing medical conditions find that they can obtain coverage through their employer’s group life insurance policy.