Group term life insurance is a death benefit your employer offers to employees, usually at no cost to you
Group term life insurance is a policy that covers multiple people — typically all employees at a company — under a single master contract. Your employer buys the policy from an insurance company and names the insurer as the administrator. If you die while covered, the insurance company pays a lump sum to whoever you name as your beneficiary. The coverage is temporary: it lasts only as long as you work there, or sometimes for a short period after you leave.
The main difference from individual term life insurance is that your employer negotiates the rates and handles the paperwork. Because the insurer covers many people at once, the cost per person is lower than buying a policy on your own. Most employers pay the full premium for a basic amount of coverage — often equal to one year of your salary — and you pay nothing. Some employers offer additional coverage you can buy yourself, usually through payroll deduction.
Key Takeaways
- Group term life insurance is paid for by your employer and covers you automatically once you are hired, with no medical exam required.
- The death benefit amount is usually one to two times your annual salary, though your employer sets the exact amount.
- Coverage ends when you leave your job, but many policies let you convert to an individual policy without a medical exam within 30 to 60 days.
- You can often buy additional coverage beyond what your employer pays for, and the cost is deducted from your paycheck.
- Group policies do not follow you to a new job — you will need separate coverage if you change employers.
How much coverage you get and who pays for it
Your employer decides the base amount of coverage and pays the premium out of company funds. This amount is typically one times your annual salary, though some employers offer two times salary or more. A few employers offer tiered coverage based on job level — managers might get more than entry-level staff.
Beyond the base amount, most employers let you purchase additional coverage, called supplemental life insurance. You choose how much extra you want — often in increments of $25,000 or $50,000 — and the cost comes out of your paycheck. The rates for supplemental coverage are still lower than individual policies because the group negotiates them. You do not need a medical exam to buy supplemental coverage up to a certain limit, usually $50,000 to $100,000, depending on your employer's plan.
What happens to your coverage when you leave your job
Group term life insurance stops when your employment ends. Your last day of work is typically your last day of coverage, though some employers extend it through the end of the month or pay period in which you resign.
Most group policies include a conversion right, which lets you turn your group coverage into an individual term or permanent life policy without taking a medical exam. You usually have 30 to 60 days after your coverage ends to convert. The individual policy will cost more than the group rate because you are no longer part of a large group, but you keep the coverage even if you change jobs or develop a health condition. If you do not convert within the window, you lose the right to do so without a new medical exam.
How to name and update your beneficiary
When you are hired, your employer or the insurance company will ask you to name a beneficiary — the person or people who receive the death benefit. You can name a spouse, child, parent, friend, or anyone else. You can also name your estate, though that usually means the money goes through probate and takes longer to reach your family.
You should review your beneficiary designation whenever your life changes — after marriage, divorce, the birth of a child, or if your relationship with the person you named changes. Most employers let you update your beneficiary online through the benefits portal or by submitting a form to human resources. The change takes effect as soon as the company processes it, so there is no waiting period. If you do not name a beneficiary, the insurance company will pay your estate by default, which can delay the money reaching your family.
The difference between group term and individual term life insurance
Group term is temporary coverage paid mostly or entirely by your employer. Individual term is a separate policy you buy yourself that you keep even if you change jobs. Group term is cheaper per month because the cost is spread across many employees and your employer pays part or all of it. Individual term costs more but gives you control over the amount and the ability to keep it for as long as you pay the premium.
Group term does not require a medical exam, so people with health conditions can get coverage. Individual term usually does require an exam, though some companies offer no-exam policies at higher rates. If you have dependents or debt, you may need more coverage than your employer offers, which is why many people carry both group coverage from work and an individual policy they own themselves.
What is not covered and what you should know
Group term life insurance pays the death benefit only if you die while the policy is in force. If you die after you leave your job and do not convert to an individual policy, your beneficiary receives nothing. Some policies exclude deaths from suicide within the first two years, though this varies by plan. A few policies have exclusions for deaths that occur while committing a crime or in a war zone, but these are uncommon in employer plans.
The death benefit is usually tax-free to your beneficiary. However, if your employer pays for coverage above $50,000, the value of the excess coverage may be taxable income to you — meaning your paycheck will be slightly smaller. This is rare with basic coverage but can happen with generous employer plans. Your benefits statement will tell you if this applies to you.
Frequently Asked Questions
Do I have to take group term life insurance when I am hired?
Most employers enroll you automatically in the basic coverage at no cost to you. You cannot turn down the base amount, but you can decline supplemental coverage if your employer offers it. Some employers let you waive coverage entirely if you show proof of other insurance, though this is uncommon.
Can I keep my group coverage if I take a leave of absence?
Coverage usually continues during paid leave, such as vacation or short-term disability. Unpaid leave varies by employer — some keep you covered, others suspend coverage until you return. Check your benefits guide or ask human resources about your specific situation.
What if I die by suicide?
Most group policies exclude suicide deaths within the first two years of coverage. After two years, suicide is covered. If you are struggling, contact the 988 Suicide and Crisis Lifeline by calling or texting 988, or reach out to your employer's employee information program.
Can my employer take away my group coverage?
Your employer can change or cancel the group policy, but they must notify all employees. If the plan ends, you have the right to convert to an individual policy. If your employer changes the plan to offer less coverage, you may have a limited time to convert the difference to an individual policy.
What happens to my coverage if I am laid off or fired?
Coverage ends on your last day of employment. You have 30 to 60 days to convert to an individual policy without a medical exam. Some employers extend coverage for a short period after termination, so check your benefits guide or ask human resources about the exact end date.