What Is Group Term Life Insurance?

Group term life insurance is an insurance policy offered to all members of a group. The group usually is employees of a particular company, but it may also be members of another type of group, such as a membership association or labor union. Employers often provide group term life insurance as an employee benefit.   

If I have group term life insurance, do I need individual life insurance? 

While group term life insurance through your employer can be a great benefit, you may want to consider supplementing your group insurance with an individual life insurance policy, which offers a bit more security and control.  

Group term life vs. individual term life insurance 

Your employer may offer a group term life insurance policy at no cost to you, but the death benefit may only be equal to one or two years of your salary. For most people, this amount of coverage would be too little to provide for your beneficiaries’ financial needs if you died during the policy’s term.  

Your coverage through an employer-provided life insurance policy will also end if you leave the employer, whether by choice or due to a layoff or firing. With a private term life insurance policy, you can choose a coverage amount that meets your beneficiaries’ needs, and you can keep the coverage in effect regardless of where you work.

Group term life vs. whole life insurance 

The main advantage of a group term life insurance policy is that the premiums are often free or inexpensive for you. 

When adding to life insurance coverage, many people consider the difference between term and whole life insurance. A whole life policy can be a much better value as a component of your financial plan.   

While whole life insurance normally has higher premiums than group life insurance, a whole life policy lasts for your lifetime, regardless of your employment, and it includes a cash value component that always grows and can provide a source of funds that you could access and use for any reason¹. 

In addition, a whole life insurance policy may pay dividends, which can add value beyond your death benefit.  

Group term life insurance combined with private life insurance 

If your employer offers a group term life insurance policy at no cost to you, you can enjoy the best of both worlds. Once you determine your total life insurance needs, you can add a private policy to supplement the life insurance you get as an employee benefit. A financial advisor can help you tailor a policy to fit your personal financial plan.   

Converting group term life to individual term life insurance 

Although your group term life insurance will end when you leave the group, some policies have an option to convert your group policy to an individual life insurance policy.   

You may need to pass a medical exam in order to convert your group policy to an individual policy, and it may be more expensive than buying a private individual policy.  

Do you pay tax on group term life insurance? 

Are group term life premiums tax deductible? 

Generally, any premiums paid towards life insurance are not tax-deductible.  

If your employer offers group term life insurance as part of your compensation, though, the employer is paying for coverage as a business expense, so you will not pay taxes on those premiums.   

Employees don’t need to pay income tax on the first $50,000 of coverage, but the IRS may consider premiums paid for higher amounts of life insurance coverage as taxable income. If your company offers group term life insurance for employees’ spouses and dependents, that benefit is counted as taxable income if it exceeds $2,000.  

Are group term life payouts taxable?  

Life insurance death benefits are generally not taxable income for the beneficiary if one or more individuals are listed as beneficiaries on your policy.   

If you designate your estate as the beneficiary, your life insurance death benefit may be subject to estate tax if your estate is large enough to meet the estate tax threshold.  

Consider adding to your group term life insurance policy 

Adding an individual term life insurance policy or a permanent life insurance policy (such as whole life insurance or universal life insurance) to your existing group term life insurance can add additional coverage to cover lost income in the event of your death.  

Speak with a financial advisor today to understand how to build a holistic financial plan that includes the right amount of life insurance for you and your loved ones. 

¹ Utilizing the accumulated value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event. Assumes a non-Modified Endowment Contract (MEC).