Group life insurance

Definition

Group life insurance is a type of life insurance policy that provides coverage to a group of individuals, usually through an employer or an association. This form of insurance is typically offered as part of an employee benefits package and provides a basic level of life coverage for members of the group, often without the need for individual underwriting. It promotes affordability and accessibility to life insurance protection, making it easier for members to secure coverage collectively rather than individually.

5 Must Know Facts For Your Next Test

1. Group life insurance typically offers a basic level of coverage that is lower than what individuals could purchase on their own, making it a cost-effective option.
2. Many employers provide group life insurance as part of employee benefits, and coverage usually starts automatically when employees are hired.
3. Coverage under group life insurance often terminates when an individual leaves the group, such as when they leave their job or retire.
4. Most group life insurance plans do not require medical exams, making it accessible for individuals who might have difficulty obtaining individual policies due to health issues.
5. Beneficiaries of group life insurance are typically designated by the insured member, and benefits are paid out directly to them upon the insured's death.

Review Questions

• How does group life insurance differ from individual life insurance in terms of underwriting and accessibility?
  • Group life insurance differs from individual life insurance primarily in its underwriting process. In most cases, group policies do not require individual medical evaluations, allowing members to gain coverage without detailed health assessments. This accessibility makes it easier for individuals with pre-existing conditions or health concerns to obtain life insurance compared to the more stringent underwriting typically required for personal policies.
• Discuss the implications of group life insurance coverage termination when an individual leaves a job or retires.
  • When an individual leaves their job or retires, their group life insurance coverage usually terminates, which can have significant implications for their financial security. This termination can lead to a gap in coverage unless individuals transition to an individual policy or secure alternative coverage. The loss of benefits can impact family members who relied on this safety net, highlighting the importance of having a plan for continuity of life insurance protection after leaving a group.
• Evaluate how the lack of medical exams in group life insurance affects both insurers and policyholders.
  • The lack of medical exams in group life insurance has important effects on both insurers and policyholders. For insurers, this approach increases the risk as they may cover individuals who would otherwise be considered high-risk if assessed individually. However, it attracts more participants, broadening their customer base. For policyholders, especially those with health issues, this means easier access to vital financial protection without the stress of medical scrutiny. Ultimately, it balances risk management for insurers while providing essential coverage for individuals in need.

Related terms

underwriting: The process through which insurers evaluate the risk of insuring an applicant and determine the terms of coverage and premium rates.

beneficiary: A person or entity designated to receive the proceeds from a life insurance policy upon the death of the insured.

premiums: The amount paid periodically to an insurance company by the policyholder to maintain coverage under an insurance policy.