Group Life insurance is a term life policy usually issued in increments of $10,000 per employee, 1x an employee’s annual salary, or some other multiple of the employee’s salary (e.g. 3x annual salary to a maximum of $X). The basic benefit is issued on a guaranteed issue basis. The carrier can go this route to spread risk across all employees because employee death during a given working year is such an unlikely event. In addition, the face amount is capped to limit exposure. Coverage is usually extended to spouses and dependents of the employee in smaller face amounts, and these policies are often subject to underwriting by the insurance company.
Often the employee may add on to the initial coverage of the group plan at favorable rates. These buy-ups will be underwritten by the insurance company, and are typically limited to no more than $500,000 in face amount. A spouse’s maximum is usually one half the amount of the employee and children are often capped even lower.
There are great benefits to having Group Term Life insurance offered by an employer. However, there is one drawback: coverage is not portable at those same incredible rates, though it is usually convertible. If convertible, it can be converted to a permanent policy without proof of insurability; however, the insured will be older and the policy must be purchased from the same carrier. Proof of insurability is not required upon conversion.