Key takeaways
Group term life insurance offers convenient, cost-effective temporary coverage through your employer, with easy sign-up and no medical exam up to a set coverage amount.
Employer-paid coverage remains income tax-free up to $50,000, though benefit amounts exceeding that threshold create a taxable benefit reported on your W-2.
Evaluating your true protection needs involves looking beyond basic salary multiples, taking into account debts, mortgage balances, and future education costs for your children.
Relying exclusively on workplace coverage carries inherent risks, as your policy may end if you change jobs unless portability or individual conversion options are active.
Pairing a group policy with a portable individual plan secures long-term baseline protection and cash value potential that remains active regardless of career changes.
Group term life insurance is a term life insurance policy that you get through your employer, which can provide a number of advantages. Often called simply “life insurance through work,” these plans are commonly offered to employees. According to the US Bureau of Labor Statistics, 42% of private industry workers in companies with fewer than 100 employees had access to life insurance plans, while 72% of workers in those with 100–499 employees and 87% of workers in establishments with 500+ employees had access.1 However, you may also be able to purchase it as part of a professional association or member group. This article focuses on employer-provided group term life coverage and will help answer key questions, including:
Employers: Discover the advantages of Guardian group life insurance
How employer-provided group term life insurance works
When eligible employees get group term coverage, it's important to know that the protection provided isn't permanent insurance. Like all term life insurance, it only provides a death benefit for a specific period of time. While some term policies can last as long as 30 years, group term coverage from your employer is often “yearly renewable.” In other words, the policy only lasts for one year but renews if you are still with your employer next year. Unlike permanent life insurance, there's no cash value component to the policy — it's designed purely to give your beneficiaries a payout if you die during the term.
Many employers provide two kinds of group term life insurance to employees as part of a broader benefits package: basic and supplemental. The employer pays for the base coverage at the basic level, but it may be limited. It could be a specific amount (for example, $10,000) or tied to earnings (for example, 1x or 2x salary). Since the basic amount may not provide enough protection, many companies give employees the option to purchase a supplemental term life insurance policy, sometimes called voluntary life insurance. Since employers buy for many employees at once, they manage a single contract through group life insurance policies instead of separate life insurance policies, which simplifies administration and can offer a number of advantages compared to a life insurance policy purchased by an individual:
Lower premium payments: Group life rates are typically lower than those for a comparable individual policy.
Simple qualification: There's usually no need for a medical exam, and it's easy to apply for because your employer already has your required data.
Easy payroll deduction: You never have to worry about making a payment — it's automatically taken out of your pay pre-tax.
The advantages of group term life insurance are easy to understand — especially if your employer provides basic coverage. However, before signing up for supplemental life, you should find out a few things. You'll be able to get most of the information you need on your company's employee website, in your benefits materials, or by talking to a human resources manager during the open enrollment period, the time when employees can select their group insurance coverage.
Portability and conversion
Portability means you can take your policy with you and still enjoy the benefits of group life insurance coverage even if you leave your employer. Conversion means you have the option of converting your basic or voluntary term coverage to an individual life insurance policy under certain circumstances, such as your employment ending. Employer-paid life insurance may or may not be portable or convertible, but supplemental policies usually are. While non-portable insurance isn't necessarily a deal-breaker, you need to remember that you can only count on being covered for as long as you stay at your company.
Taxes
Your employer is allowed to provide you with up to $50,000 of basic group term life income tax-free, meaning you don't owe taxes on the premium amount, and your beneficiaries won't pay taxes on the death benefit.2 However, premiums for any life insurance coverage over $50,000 are considered a taxable benefit and reported on your W-2 as “imputed income,” and that imputed cost is subject to Social Security and Medicare taxes. This isn't necessarily a bad thing: since you're effectively paying taxes on the premiums, any death benefit will be paid to your heirs without being income-taxed.
Pricing
Basic employer-paid coverage is typically the most affordable: you pay nothing out of pocket, though coverage over $50,000 creates a small taxable benefit. And while you have to pay for supplemental group life coverage, it typically features attractive rates, especially for younger policyholders. In fact, life insurance in general may cost less than you assume: Guardian research shows that over half of Americans think life insurance costs three times more than it actually does.3 However, rates increase with age, often in five-year intervals. For example, rates may be the same per $1,000 of coverage for every employee less than age 30, then go up a bit for ages 30–34, and so forth. If you're not sure about the rates you're getting at work, or if you want additional coverage, you can easily get term life insurance quotes online for a quick comparison.
Eligibility
Eligibility requirements — such as a minimum number of work hours per week — vary by employer and plan. However, once you meet the requirement, eligible employees are often automatically enrolled at the basic coverage amount.
Supplemental group term life insurance is a different story: sign up isn't automatic because you have to choose an amount of coverage (see below). Companies set different rules, but if you don't opt for coverage when you're first hired, you'll typically have to wait until open enrollment to sign up or add coverage, unless you have qualifying life events, such as marriage or the birth of a child. Finally, while acceptance is usually automatic up to a certain amount, employees seeking a higher level of coverage may face underwriting: the insurance company will ask questions about your health and lifestyle habits and may require a medical exam. Depending on the results, the insurer may not offer coverage (or limit you to the automatic acceptance level).
How much coverage do you need?
Half of the life insurance owners in America own one to two times their salary.4 Yet many families may be under protected: life insurance ownership is at a 50-year low, with only about half of American adults having any coverage at all.5 However, life insurance professionals will commonly suggest considering having anywhere from five times to 20 times your salary in life insurance coverage. If you make $75,000 a year, that's a death benefit between $375,000 and $1.5 million. Why such an enormous range? There are many things to consider when determining how much life insurance you actually need. For example:
How much money would your family need for financial protection — both short- and long-term — if you passed away? What immediate expenses, including funeral costs, would they need to cover? And how much money would they need for the future?
If you have children who are still at home, how much will it take to raise them and send them to college or set them up for success after graduating from high school?
If you have a spouse, do you want the death benefit to help cover their needs through retirement?
Do you have a special needs child or a parent who needs to be provided for?
Do you have substantial cosigned debts, such as a mortgage or student loans?
If you have a family, you probably want life insurance to provide protection for family members and help cover the extra costs they will face in your absence, especially while your children are still at home. The more dependents you have — and the younger they are — the more life insurance you may need. And many families have little cushion to fall back on: More than 1 in 5 US workers say they could live less than a month without a paycheck, and median emergency savings among full-time workers is just $2,500.6 There are a few general rules that can help you start figuring out your life insurance need:
Human Life Value
You can estimate the amount of life insurance you need using what financial advisors call the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future. In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits. As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:
Age | Maximum life insurance |
|---|---|
18–40 | 30x income |
41–50 | 20x income |
51–60 | 15x income |
61–65 | 10x income |
66–70 | 1x net worth |
71–80 | 1/2x net worth |
81+ | case by case |
Consider 10x your salary
If you add $100,000 to $150,000 for each child, that will help ensure they can achieve more of the opportunities you want for them.
The DIME formula
DIME stands for debt, income, mortgage, and education. Total your debts, mortgage, and college expenses, plus your salary for the number of years your family needs protection (e.g., until the children are out of the house), and that's your coverage need.
Any of those methods are a good start, but there are more detailed online life insurance calculators that can help you arrive at a more accurate number.
Other life insurance options to consider
Group term life insurance through work can be a valuable choice for all the reasons noted: it's easy to get, easy to pay for, and you'll enjoy favorable group rates. However, many companies don't offer group life insurance benefits — and even if they do, the total coverage available may not be enough for your needs. Fortunately, there are many other coverage options available, ideally through the same insurance carrier. For example, Guardian offers multiple life insurance options for employer groups, as well as for individuals via financial advisors, so you can choose the options best for you without having to work with more than one insurer.
As Andy Gordon, Head of Individual Life Insurance at Guardian, puts it: “It’s wonderful when employers offer life insurance as a benefit, and it’s a great foundation. But for most people, it’s not sufficient on its own.”7
Getting life insurance as an individual
Term life insurance is very easy to shop for and get on your own. Many insurance companies, including Guardian, make it simple to compare rates for an individual life insurance policy by giving you an instant online term life quote. Most of the quotes you'll see are for level term life. These policies are typically offered with 10-, 15-, 20-, or 30-year terms, and unlike yearly renewable term, premiums stay the same for the length of the policy. Those premiums may not be much higher than with a group term life plan if you're healthy. And coverage isn't dependent on your company or employment status — as long as you keep paying premiums, your policy will remain in force until the end of the term.
An individual policy also gives you more options, starting with the fact that you don't have to get term coverage — you can opt for whole life insurance or universal life insurance. These policies are designed to provide permanent, life-long protection that also builds cash value.8,9 And no matter which type of individual policy you choose, you’re likely able to tailor individual policies with riders (optional provisions) that can provide valuable added benefits.10 For example, many term life policies offer a convertibility rider that lets you change over to a permanent policy without getting a new medical exam. Permanent life policies are even more customizable.
If you are thinking about getting an individual policy, first evaluate your options with your employer, then talk things over with an experienced professional — like a Guardian financial advisor — who can provide a more personalized assessment of your needs and tell you about all your coverage options. And since you'll have a choice of life insurance company, make sure to look for two things:
Financial strength — You want to be confident that the company will be around when your family needs a payout years down the road. So, look for insurers with strong Financial Strength Ratings (FSRs), like Guardian.11
A company that underwrites its own policies — Some companies sell policies from another insurer. This can add costs and an extra layer if you want to convert your policy to permanent coverage — or down the road when your family needs a payout.
As Gordon puts it: “Life insurance isn’t just about planning for the worst; it’s about providing financial confidence.”12
Frequently asked questions about group term life insurance
This is a term life insurance policy that you get as part of a group — typically through work under a single contract covering many employees. You can also get it as part of a professional organization or member group. Because you're one of many people buying coverage together, the rates are typically lower than they would be for the same amount of coverage purchased as an individual. Eligible employees are often automatically covered at the basic level, and may be enrolled without medical underwriting, making them easier to qualify for without the need for a medical exam. Employees can also usually buy supplemental coverage for themselves and sometimes family members for an additional premium.
Group life insurance can be an affordable coverage option that's also easy to get, but you should also be aware of the limitations. For one, it's term coverage that is not permanent and doesn't build cash value. Secondly, if you leave the group or company you get it from, you could lose coverage if the policy isn't portable. Finally, the amount offered may be lower than you could get with an individual policy, and employees who need more coverage may have to elect and pay for it separately.
Generally not, up to a point. Employer-paid premiums for your first $50,000 of group term coverage aren’t taxed, and the death benefit is generally free from federal income tax. If your employer provides more than $50,000 of coverage, though, the cost of the extra coverage counts as “imputed income” — you may see it as a “GTL” (group term life) line on your pay stub — and it’s reported on your W-2 and subject to Social Security and Medicare taxes. Guardian doesn’t provide tax advice, so talk to your tax professional about your individual situation.
No. Because it is a term life policy, there is no cash value. It is designed primarily to provide a life insurance or death benefit, rather than build savings.
