Group term life insurance allows you to buy a life insurance policy for free or at low cost. If it is available through your work, you should sign up for it without hesitation.
Depending on your policy, it may be possible to extend the coverage to your spouse and children.
Continue reading to find out what group term life insurance is, how it works, and whether it provides enough coverage for your family.
What is group term life insurance?
Group term life insurance is a term life financial product that covers the lives of a group of individuals for a pre-defined period, usually one year. However, the policy can be renewed each year to maintain continuous coverage. Many Canadian employers offer group term insurance as part of their employee benefits package. Often, basic term life coverage is available for free or at reduced rates. Employees have the option to purchase additional coverage, as well as coverage for their spouse and children.
Life insurance companies charge much lower premiums for group term life insurance compared to individual term life policies. For this reason, participation is usually very high.
How does group term life insurance work?
Many Canadian employers offer group term insurance coverage as part of their benefits package. Employees automatically qualify for coverage as long as they meet the eligibility requirements, such as having been an employee for at least six months. Basic coverage usually covers one or two times the annual salary, and is provided for free or at subsidized rates. Employees often have the option to purchase additional coverage through payroll deductions. If you decide to buy an additional death benefit, your monthly cost depends largely on your age.
Depending on your group plan, you may have the option to customize your coverage by adding riders (e.g. to cover your spouse or children). Some group plans come with a conversion privilege provision, which allows you to convert your group term life policy into an individual plan without a medical exam. Keep in mind that your new premium rate is likely to be significantly higher.
Your beneficiary will receive the proceeds from your group term life policy if you die while the policy is still in force.
Why offer group life insurance to your employees?
As an employer, are you looking to maximize employee wellness at your organization? If so, life insurance is a key benefit to consider.
A comprehensive benefits package helps improve retention and recruitment
Group life insurance has become a competitive necessity because most top employers offer it as part of their employee benefits package. A comprehensive life insurance plan means a lot to employees, especially those with dependents. Comprehensive life insurance is one of the key benefits employees look for in a new job.
Group life insurance helps boost financial security for employees
Employees covered by a sizable life insurance plan know that, in the event of their death, their loved ones will receive a cash benefit. This provides financial security for employees, giving them peace of mind. Financial security, in turn, is linked to improved productivity at work.
Group life insurance plans are generally inexpensive for employers
Compared to individual life insurance, premiums for group term life insurance policies are significantly lower.
What are the requirements?
Basic coverage is available to all employees who meet the eligibility requirements set by the employer. For instance, the employer may offer this benefit to all permanent employees. Since eligible employees do not need to undergo a medical examination or answer health questions to prove insurability, they are automatically enrolled into basic coverage.
Usually, group plans also offer supplemental coverage, the entire cost of which is passed to the employee. The amount of supplemental coverage and its availability differs from one group plan to the next. Some group term life insurance policies may allow enrollment for supplemental coverage only when employees first sign-up for the plan, while others may allow enrollment only upon a qualifying life event, for example, becoming a parent.
Supplemental insurance coverage may involve underwriting. When it does, the life insurance company is likely to ask a few basic health questions rather than request a medical examination. Based on the answers, the insurer will determine whether to offer supplemental coverage.
The main benefits of buying group term life insurance include:
Group life insurance costs less than individual life insurance and is sometimes even free.
Liberal underwriting standards
All employees automatically qualify for basic group insurance coverage once they meet the eligibility requirements set by the employer. As a result, it is possible to receive coverage even with pre-existing conditions.
Signing up for group life insurance is convenient since all the paperwork is usually handled by the employer’s HR department.
Some group term life insurance plans include the conversion privilege provision. This provision allows you to convert your group policy into an individual plan in the event of termination of employment or retirement, without submitting proof of insurability
While group term life insurance offers a chance to secure low-cost insurance coverage, it has some drawbacks, such as:
Group term life insurance is tied to your job
In most cases, group term life coverage is not portable. If you lose or leave your job, the coverage will likely end. Therefore, if you still want coverage, you will have to take out a new term life policy. Depending on your age and health, a new plan may be expensive. If you have a serious health condition, you may not even qualify for a medically underwritten policy. In this situation, no-medical life insurance is your only option, however these policies have limited coverage — usually not more than $50,000.
Group term life insurance alone may not be enough
While people have different life insurance needs, most experts say you should be covered for at least 10 times your annual salary if you are the primary or sole breadwinner for your household. Most group term life plans, however, cap the coverage amount at one or two times the base salary, which is not likely to be enough to secure your family’s future.
Some group life plans give employees the option to buy additional coverage, but this feature is not always available. If it is not available and your primary reason for purchasing life insurance is to provide income replacement for your spouse, consider supplementing the group coverage with an individual life insurance policy.
Group term life insurance is not very flexible
While you can easily customize an individual term life policy by adding relevant riders, that is not usually the case with group term life insurance policies. Your employer decides whether riders can be added to your base policy, and if so, which ones.
Group term life insurance is in effect as long as your employer continues the plan
If your employer decides to end the group plan, you will lose coverage. While few employers discontinue a group life insurance policy after putting it in place, it nevertheless can happen.
Group term life insurance is an excellent way to secure low-cost coverage, but for comprehensive protection, you should also consider taking out an individual life insurance plan. Dundas Life works with top Canadian insurers and can help you find the right coverage for your specific needs at the lowest possible price.
Gregory Rozdeba is the CEO of Dundas Life, Canada's leading digital insurance brokerage. He has over 8 years of experience in the life insurance industry. Gregory previously served as Director of Sales at a Toronto-based insurtech firm. He took the company from having no product to raising over $7.6M+ in venture capital to transform the prospect to policy process in Canada. Gregory holds a Bachelor's Degree in Finance & Accounting from Ontario Tech University and a Master of Information Management from FH Joanneum.