Group Life Insurance and Other Group Benefits
How group insurance works
One master contract between the insurer and the employer or trustee; participants receive certificates, not policies. Underwriting evaluates the entire group, so individual evidence of insurability is normally not required. Eligibility rules include a waiting period, a minimum-hours-worked requirement, and an actively-at-work condition. In a contributory plan (employees pay part), a minimum percentage of eligible employees - commonly 75% - must participate; a noncontributory plan (employer pays all) generally requires 100%.
Group life features
Coverage is usually one-year renewable term with benefits set by flat amount, salary multiple, or job class. The death benefit is income-tax-free; employer-paid coverage above $50,000 creates imputed income using IRS Table I. A conversion privilege lets a terminating member buy an individual policy without evidence of insurability, usually within 31 days; portability lets the member keep group coverage by paying the premium. AD&D pays for accidental death or dismemberment and is not a substitute for life insurance.
Other group benefits
Group short-term and long-term disability, dental, vision, and medical coverage. Employer-paid premiums are deductible to the business and generally not taxable to employees (except discriminatory plans favoring key employees); employee-paid premiums can be made pre-tax through a Section 125 cafeteria plan. Coordination of benefits prevents duplicate payment, and continuation rules extend coverage after a qualifying event.
Worked example: An employee leaving with $120,000 of fully employer-paid group term passes away; the beneficiary receives the full amount income-tax-free, but the employee had imputed income only on the cost of coverage above $50,000. Trap: conversion produces individual permanent coverage; portability keeps the group contract.