Group life insurance
Life insurance is one of the most common employer-provided benefits. Here are some of the basics of life insurance and the different types employers can offer to employees.
Life insurance is divided into two categories: term and permanent. Term life insurance has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of a term. Premiums are generally affordable initially, but can increase substantially when renewed.
Permanent life insurance is life-long coverage that generally also includes a cash value savings component. There are many types of permanent life insurance, including whole, universal and variable. This type of coverage has higher premiums, but offers more long-term value.
Additional voluntary options
Many employers who offer such a group-term policy also offer additional voluntary coverage options, in which the employee pays the full cost but still realizes the benefit of group rates and payroll deductions. Additional coverages offered may include:
- Spouse/dependent life insurance (group-term policies only cover the employee)
- Supplemental term life insurance (to elect a higher amount than the employer offers)
- Supplemental permanent coverage (a whole, universal or variable life policy in addition to the term policy)
- Accidental death & dismemberment (AD&D) coverage
Types of life insurance
Life insurance is divided into two categories: term and permanent (also sometimes referred to as whole).
Term life insurance
Term life insurance has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of the term. Premiums are generally affordable initially, but can increase substantially when renewed.
Whole life insurance
Whole life insurance is a type of permanent insurance that offers life-long coverage combined with a cash-value savings component. This type of policy has higher premiums than term life. Premiums remain constant throughout the policy and a portion is invested by the company, which becomes the cash value of the policy. Whole life insurance pays a fixed amount upon death.
Universal life insurance
Universal life insurance is another type of permanent insurance policy that combines term insurance with the ability to earn interest on the cash value, paying a market rate of return. Cash value grows tax-deferred, and can be withdrawn or borrowed from the policy. It is more flexible than whole life insurance as it also allows you to change your premium payments and death benefit, within limits.
Variable life insurance
Variable life insurance is similar to universal life insurance in terms of flexibility and an investment aspect. However, instead of simply earning interest on the accumulated cash value, policy owners have more control over how to invest that cash. The ability to invest in professionally managed investment options allows for the potential to accumulate cash value while providing death benefits protection. However, there is greater risk for loss due to this benefit.