Legal Definitions - group life insurance

Group life insurance is a type of life insurance policy designed to cover a group of people, typically employees of a company or members of an organization, under a single contract. Instead of each individual purchasing their own separate policy, the employer or organization holds the master policy and provides coverage to eligible individuals as a benefit.

This coverage is often a set amount, sometimes calculated as a multiple of the employee's salary, and the employer usually pays for all or a significant portion of the premiums. Employees may also have the option to purchase additional coverage through the same group policy, often at a favorable rate.

A key characteristic of group life insurance is that the employer or organization is the sole owner of the master policy, even though individual employees receive coverage. Most group life insurance policies are "term" policies, meaning the coverage is active only as long as the individual remains employed by or a member of that organization. Unlike some individual life insurance policies, group policies typically do not include investment components or accumulate cash value. They are often attractive because they can be more affordable than individual policies and may not require a medical exam for basic coverage amounts. However, the coverage is generally not transferable if an employee leaves the job or an individual leaves the organization.

• Example 1: Corporate Employee Benefit
  "Global Innovations Corp.", a large technology company, offers group life insurance as a standard benefit to all its full-time employees. The company pays the entire premium for a basic coverage amount equal to one year's salary for each employee. Employees have the option to purchase supplemental coverage, up to three times their annual salary, through convenient payroll deductions, often without needing to undergo a medical examination.

  This example illustrates how an employer provides a valuable financial safety net to its workforce, covering the cost of basic coverage and offering an easy way for employees to increase their protection. The company owns the master policy, and the coverage is tied to the individual's employment.

• Example 2: Professional Association Offering
  The "National Association of Healthcare Professionals" (NAHP) provides group life insurance as an optional benefit to its dues-paying members. Members can enroll in a basic policy with a fixed coverage amount of $100,000 for a low monthly premium, which is significantly less than what an individual policy of the same value would typically cost. The NAHP manages the master policy with the insurance provider on behalf of its members.

  This demonstrates how an "other organization" (a professional association, not an employer) can leverage the collective buying power of its membership to offer an affordable group life insurance option, providing a benefit that might otherwise be inaccessible or too expensive for individual members.

• Example 3: Small Business Providing Basic Coverage
  "Maple Street Bistro," a small restaurant with 20 employees, decides to offer group life insurance to its entire team. The bistro pays for a modest $20,000 policy for each employee, providing a basic level of financial protection for their families in case of an unforeseen event. Many employees appreciate this benefit, as they might not have considered or been able to afford individual life insurance policies on their own.

  This scenario highlights how even a small employer can provide group life insurance, offering a valuable and often appreciated benefit to its employees. It showcases the employer as the policy owner providing coverage to a group of individuals, simplifying the process and often reducing costs for the employees.