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You just got hired and your company is offering you group term life insurance.
That sounds good. But what is it? How does it work? And are there any traps that money expert Clark Howard wants to make sure you don’t fall into?
Group term life insurance is a contract that covers multiple people.
Companies often offer group term life insurance to employees as a benefit, although unions and other entities can partake as well.
Many companies offer a base coverage amount of group term life insurance at no cost. Employees often get the option to purchase additional coverage as supplemental insurance.
Because it’s free or less expensive than buying term life insurance as an individual, the participation rate for group term life insurance tends to be high.
It’s possible — and even advisable — to look into the best term life insurance companies on your own, even if a company offers you group insurance coverage.
Corporations typically don’t offer group term life insurance to just anyone.
There are some rules around who is and isn’t eligible. It’s common for employers to reserve group term life insurance for full-time employees and/or to require at least some degree of tenure at the company before you’re eligible.
Sometimes companies base their offer on whether you have dependents (spouse, children) or tier their offer depending on your status (executive, mid-level management, hourly employee).
Your annual salary tends to be the standard coverage amount that your employee will offer you — often for free. And you may be able to buy multiples of your salary as additional coverage.
Sometimes a company will automatically enroll you in its group term life insurance policy when you get hired.
Companies hold open enrollment periods for any adjustments to your policy in terms of dependents or benefit size. You’ll also want to make sure that you fill out a beneficiary form that legally designates where the money will go if you die while you’re covered by the company’s policy.
When you leave your job, you may be able to convert your group life insurance policy to an individual term life insurance policy, but that will cost you.
“If your employer gives you free life insurance, take it,” Clark says. “But never count on employer-provided life insurance. And never buy additional coverage from your employer unless your health prevents you from qualifying for your own policy.”
According to the Internal Revenue Service, companies are allowed to provide their workers with up to $50,000 in group term life insurance tax-free. Anything more than $50,000 is a taxable benefit and will show up on your W-2.
There are exceptions for owners and certain executives, who may have to consider group term life insurance coverage of $50,000 or less to be a taxable benefit.
Here are some of the biggest benefits of group term life insurance:
Here are some of the biggest
Group term life insurance is a nice workplace perk that, hopefully, you never have to use.
However, your benefit generally matches your annual salary. That’s not enough coverage if you’re counting on life insurance to replace your income. So you still need to look at buying level-term life insurance.
This post was last modified on September 20, 2022 8:14 am
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