Basic Group Term Life Insurance

What is Basic Group Term Life Insurance?

Basic group term life insurance is an amount of life insurance that insures each benefit eligible employee.

Employer Paid Life Insurance

Basic life is normally 100 percent paid for by the employer. Because it’s an employer-paid employee benefit, it’s sometimes called employer paid life.

Employers offer basic life insurance to help employees cover a funeral if they would happen to die while they are employed by the company.

Amount of Group Life Insurance

You’ll usually see basic life insurance in one of two types of amounts.

  • Flat amount – Many employers choose to offer a flat amount of life insurance. This amount of life insurance may be an amount of $10,000 and up.
  • Multiple of salary – Instead of a flat amount, an employer may offer an amount of basic group term life insurance equal to a multiple of salary. The amounts I have seen are 1-3 times salary.

$50,000 of Life Insurance is Tax Free to the Employee

Basic life insurance in the amount of $50,000 or less is tax free to the employee. For amounts over $50,000, the amount of the premium will be included in your W2 as a imputed income.

Coverage is Guaranteed Issue

Basic life coverage is guaranteed issue and you will be covered regardless of current health conditions. There are no medical questions to qualify.

Basic Group Term Life Insurance for Dependents

Most basic group life plans only cover the employees. Some employers will also provide a small amount of basic life for spouses and dependents.

You’ll Need to Name a Beneficiary

Even though eligible employees are automatically enrolled in group life even if you do not complete your enrollment, it’s important to name a beneficiary.

Otherwise, if something happens to you while you are covered under the group policy, your benefit will paid to your estate. This means that creditors can make a claim against your estate. If you name a beneficiary, the amount is paid directly to the beneficiary outside of the reach of creditors.

Proof of Coverage

Since the employer owns the master policy, you will not receive a policy for basic life. Instead, you can request a policy certificate. You’ll want to obtain a copy of your employers policy certificate and make sure that you keep a copy of your benefit confirmation statement from open enrollment.

Keep this information in a place where your beneficiary can find it if something happens to you.

Age Reduction Schedule

If you are a benefit eligible employee, you are automatically enrolled in basic life no matter how old you are. Most plans have an age reduction schedule which means that when you reach certain ages (like age 65 and later ages), your benefit amount will reduce to a lower amount when you reach that age.

When Does Basic Life Coverage Terminate?

Basic life typically ends when you leave or retire from your employer and are no longer a member of the group.

Conversion Option

Basic life may have what’s called a conversation option. A conversion option means you can change the group term life insurance to an individual whole life policy without having to answer medical questions that you can keep after you leave employment. This conversion usually needs to be requested with 30 days of terminating employment. Otherwise, the conversion option expires.

In reality, most people do not convert their basic life because of their age and the cost involved.

Additional Basic Life Insurance Information

Basic life may also include other benefits such as:

  • Accidental death and dismemberment
  • Accelerated death benefit
  • Seat belt benefits
  • Bereavement benefits

I’ve also seen:

  • Employers pass along some of the cost of basic life to employees
  • Different classes of employees (salary vs hourly for example) offered different amounts of basic life insurance.
  • Employers requiring enrollment in the medical plan to be covered under the group life insurance.

In Conclusion

Basic life is a great employer paid benefit. You’ll automatically be enrolled in basic life is you are eligible but you want to make sure that you name a beneficiary.

Basic life usually ends when you leave or retire. Most employees will outlive their basic life insurance. It’s best not to rely on basic life insurance because you don’t own or control it. When you need it most, it will have likely expired.

That being said, it’s still a great benefit that you want to be enrolled in.

Basic group life insurance is one of the four types of group life insurance. Learn more about each type of group life by reading my guide to group life insurance.

BeneHQ

BeneHQ helps HR professionals, insurance brokers and employees better understand their employee benefits. The team's experience spans hundreds of employers and thousands of employees enrolled over the past 35 years.

About BeneHQ

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Disclaimer

The views expressed here are personal opinions and do not represent the view of any employer or insurance company. You’ll want to check with your own employer, their agents and insurance companies to help you decide which options are best for you. This site is for educational use only and not meant to be advice.