Group Life Insurance
Core coverages
Group term life is the foundation: renewable one-year term coverage, usually with a schedule of benefits based on salary multiples or flat amounts. It builds no cash value. Common variants include basic life (employer-paid), supplemental or optional life (employee-paid), dependent life, accidental death and dismemberment (AD&D), and group universal or whole life products.
Concepts candidates must know
- Benefit schedules: Flat amount, salary multiple, or class-based amounts. Questions test how a benefit changes when salary changes.
- Reductions after age: Many plans reduce benefits at ages 65, 70, and later, or convert to a reduced paid-up amount.
- Conversion privilege: On termination, employees may convert group term to an individual policy without evidence of insurability within a stated window (commonly 31 days).
- Portability: Some plans allow continued group coverage after termination, usually at the employee's expense.
- Imputed income: Employer-paid coverage above $50,000 generates taxable imputed income under IRS rules (IRC Section 79).
- AD&D: Pays for accidental loss of life or limb; it is not a substitute for life insurance.
Traps
Examiners love the conversion deadline and the difference between conversion and portability. Another trap: assuming supplemental coverage is employer-paid. Also watch questions about beneficiary designations and facility-of-payment provisions.
Worked example
An employee earning $80,000 has coverage equal to two times salary, or $160,000. If the plan reduces benefits by 35% at age 65, the benefit becomes $104,000. If the employee terminates employment, the employee may convert to an individual policy within the conversion window without proving insurability.
Rule of thumb
For conversion questions, remember: no evidence of insurability, limited time window, employee pays the premium. For tax questions, focus on the $50,000 threshold.