What is Group-Term Life Insurance?

What is Group Term Life Insurance
What is Group Term Life Insurance

One term insurance contract is provided to cover several persons under group term life insurance. The most typical type of group is a business, where the contract is given to the employer, who then provides coverage to employees as a perk. Many employers offer free basic group coverage to their employees as well as the option to get supplemental coverage and coverage for their spouses and children. This article will go over group-term life insurance taxes, benefits, and workings of life insurance after retirement.

Comparatively speaking, group-term life insurance is less expensive than individual life insurance. Participation is high as a result.

What Is Group Term Life Insurance?

A single contract that covers an entire group of people is known as group life insurance. Typically, a labor organization or an employer is the policy owner, and the policy covers the group’s members or its employees. A complete employee benefits package frequently includes group life insurance. The cost of group insurance is typically much less than what employees or members would pay for an equivalent level of individual protection. Therefore, if your employer or another group offers you group life insurance, you should typically accept it, especially if you don’t have any other life insurance or if your coverage is insufficient.

The master contract, which is the actual insurance policy, is kept by the employer or other party who is the policy owner. A certificate of insurance that serves as proof of insurance but is not the insurance policy is normally given to everyone who is protected. You can select your beneficiary with group life insurance just like with other types of life insurance.

The most popular kind of group life insurance is term insurance. The most common form of group term life insurance is annual renewable term insurance. When your workplace offers group term insurance, the employer typically covers the majority (and in some circumstances the entire) cost of the premiums. Your coverage will normally cost one or two times what you earn annually.


Until the particular period of coverage expires or until you leave your job, group-term insurance is still in effect. If you quit your work, you might be able to switch from group insurance to an individual policy. Because these conversion premiums are typically substantially higher than those for equivalent policies offered to individuals, the majority of customers opt not to do this. Usually, this conversion option is only used by otherwise uninsurable people.

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Taxes on Group Term Life Insurance

Unless a special Internal Revenue Code (Code) exclusion exists, everything an employee receives from their employer as compensation, including benefits like life insurance, is generally included in the employee’s gross income. Employer-sponsored group term life insurance plans are governed by Code Section 79, which also grants us an income exclusion for the cost of up to $50,000 in group term life insurance coverage.

Depending on whether the group term life insurance plan is discriminatory, how the premiums are paid (employer paid, employee paid pre-taxes, or employee paid after-tax), and whether the plan is regarded as “carried” by the employer as defined in Code Section 79, an employer may be required to compute imputed income on life insurance coverage.

If an employee receives more than $50,000 in group term life insurance benefits from their employer, the “cost” (imputed income) of the additional coverage—less any after-taxes contributions made by the employee—is included in the employee’s gross income for federal income tax and Federal Insurance Contributions Act (FICA) considerations.

This essay provides a general review of group term life insurance before discussing the conditions that apply to the Code Section 79 income exclusion and the circumstances under which employers may be obliged to compute imputed income.

Group Term Life Insurance Beneficiary

Let’s break down the meaning of the terms used in the group term life insurance. Consider purchasing life insurance and designating your parents as beneficiaries. In the case of your passing, the insurer commits to make financial payments to your beneficiaries.

Let’s go one step further with this. With term life insurance, you agree to pay recurring premiums to the provider. The policy determines the term length. The person choosing insurance is the main distinction between term life insurance and a group term policy. In a group insurance plan, the organization’s employer selects the policy.

Employees may designate beneficiaries who will receive the cover benefits if they pass away during the term. Additionally, the employer makes all of the important choices regarding the policy. These cover the assured sum, add-ons, and other things. As a result, they become the central administrator, someone in charge of all policy-related issues on behalf of the workforce.

Group Term Life Insurance After Retirement 

Group-term life insurance is a choice that permits you to continue receiving similar group life insurance coverage even after retirement. The terms and conditions of Retirement Life Insurance could not be the same as those of your employer’s group insurance after retirement.
You don’t need to provide evidence of excellent health to continue receiving coverage at the same rates as active employees after retirement.

Your coverage will be cut in half by 8% if you become 67. According to the following table, it continues to decline. The coverage starts at 80 years old and is a fixed USD 5,000.

How Does Group Term Life Insurance Work

The coworkers you work with are also covered by the group term life insurance. As long as you work for the company, you are protected by the policy.
Let’s take a deeper look at the factors to take into account while assessing a group-term life insurance policy.

#Step 1: Do Research policies

The sum promised to pay is one of the most important choices you’ll make when selecting your group term insurance. Sum assured is the amount beneficiaries of employees receive in the event of their passing during the term.

The sum promised can be calculated in two main ways. One, you give each of your employees a fixed life insurance policy. It’s sometimes referred to as a flat cover. Or two, you offer an assured payment that is multiplied by the CTC of your employees. If an employee’s pay is 7 LPA, for instance, and the cover’s multiplier is 2, their sum promised is 14 LPA.

#Step 2: Add your Riders

Riders are extras that expand the scope of your group’s term insurance. The most typical ones include accidental benefits, critical sickness insurance, and others. The cost of the protection rises as riders are chosen.

Getting input from your staff is the best method to determine which riders are ideal for your group insurance. It provides perception into the priorities of your staff.

#Step 3: Get a quote

Once you have the fundamentals of your coverage, the insurer provides an estimated premium. Your industry, the number of employees, and their average age all affect the premium estimate. Each year, companies can renew their group term insurance.

Once the payment is made, employees are covered under group term cover as of the first day of work.

#Step 4: Implement the policy.

Once your policy is in place, you can allow your employees to add beneficiaries. The group term life insurance policy releases the sum assured coverage if an employee passes away during the term. The beneficiaries of the employee receive the payment in a flat sum or installments.

The employees’ dependents, such as their spouses and kids, are helped by this monetary reward. After the insured’s death, they can use the sum assured as a replacement income.

Group Term Life Insurance Benefits

The benefits of group term life insurance plans for both companies and employees are listed below:

#1. Default Insurance Cover

Members of a group are automatically covered by an insurance policy just by being a part of the group. It provides fundamental insurance to protect those without personal life insurance coverage.

#2. Funding for gratuities

Employers are helped by a methodical approach to accumulating funds for their potential future gratuity liability to the employees. A group insurance policy makes it easier for employers to do both of these things and to ensure employee lives with life insurance.

#3. Tax benefits

Plans for group term life insurance come with tax benefits for both companies and employees. According to current tax laws, Section 10(10D) of the Income Tax Act, of 1961 exempts death benefits from taxation. Additionally, group insurance programs are successful in both employee retention and welfare.

#4. Adaptable to the needs of the employee

With add-ons like schooling allowance, repatriation allowance, accidental death, and others, group insurance policy coverage can be increased to cover a variety of benefits in addition to the base cover.

#5. No medical examinations

Group-term insurance plans spare employees the inconvenience of having to undergo medical examinations.

#6. Affordable

A group plan’s premium is significantly less than that of an individual policy because it provides insurance coverage for a large number of people.

Unquestionably, obtaining insurance protection against a variety of risk variables, let alone life, is smarter done through a group insurance policy. Analyze the best group strategy first.


In general, life insurance premium payments are not tax deductible.

However, if your employer provides group term life insurance as a benefit as part of your pay, the employer is funding the policy as a business expense, therefore you will not be required to pay taxes on the premiums.

The first $50,000 of coverage is exempt from income tax for employees, but the IRS may treat premiums paid for higher amounts of life insurance as taxable income. If your business provides group term life insurance for a spouse and dependents of employees, the benefit is treated as taxable income if it exceeds $2,000 per year.


What is the difference between term and group life insurance?

Permanent (or full) and term insurance are both included in the category of individual policies, which are owned by a single person. On the other hand, group life insurance is frequently provided to you as a perk of employment and is typically in the form of an employer-sponsored life insurance policy.

Can I cash out my group life insurance policy?

Generally, you are only permitted to withdraw money from the coverage up to the number of premiums already paid tax-free. Usually, you must pay taxes on any sum that exceeds the premiums you have already paid. Your insurance will still be in effect if you take some of the money out.

What is an example of group life insurance?

Multiple persons are covered under one plan through a type of insurance called group life insurance. Typically, businesses, trade associations, professional associations, and unions offer them. For instance, if you join a new company, they might provide group life insurance as a perk to employees.

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