Skills without mastery are useless. Mastery is impossible without the right methods. SimpliGrok platform makes mastery effortless and fastest with proven, smart practice.
Skills without mastery are useless. Mastery is impossible without the right methods. SimpliGrok platform makes mastery effortless and fastest with proven, smart practice.
Group life insurance provides coverage for multiple people under a single master policy. It's commonly offered by employers as an employee benefit and has distinct features compared to individual life insurance.
Single master policy covering a group:
- Master policy: Issued to group policyholder (employer, association, creditor)
- Individual certificates: Each covered person receives certificate of insurance
- Group underwriting: Minimal or no individual medical underwriting
- Lower cost: Generally less expensive than individual policies
Policyholder (Master Policyholder):
- Owns the master policy: Employer, association, union, creditor
- Pays premiums: Often pays all or part
- Administers plan: Handles enrollment, changes, claims
Insured/Certificate Holder:
- Covered individual: Employee, member, borrower
- Receives certificate: Proof of coverage document
- May pay portion: Through payroll deduction
Beneficiary:
- Receives death benefit: Person(s) designated by insured
- Insured chooses: Not the employer
Not a policy:
- Summary of coverage: Shows amount, effective date, beneficiary
- Evidence of coverage: Proof individual is insured
- References master policy: Full terms in master policy
- Not a contract: Master policy is the contract
Contains:
- Coverage amount
- Effective date
- Beneficiary designation
- Conversion rights
- Claims procedures
Most common type:
Flat amount:
All employees: $50,000
Simple, easy to administer
Multiple of salary:
Coverage: 1×, 2×, or 3× annual salary
Employee earning $60,000: $120,000 coverage (2× salary)
Higher earners get more coverage
Position schedule:
Executives: $500,000
Managers: $250,000
Supervisors: $100,000
Employees: $50,000
$50,000 Exclusion (IRC § 79):
- First $50,000: No taxable income to employee
- Over $50,000: Imputed income based on IRS Table I
- Employer deducts: All premiums as business expense
Example:
Employee coverage: $150,000
Employee age: 50
Table I rate (age 50-54): $0.23 per $1,000 per month
Taxable coverage: $150,000 - $50,000 = $100,000
Monthly cost: ($100,000 ÷ $1,000) × $0.23 = $23
Annual imputed income: $23 × 12 = $276
Employee reports: $276 as additional taxable income
Permanent insurance:
- Accumulates: Builds paid-up insurance each year
- Cash value: Some cash value accumulation
- Combination: Often combined with term for full benefit
Permanent coverage option:
- Portable: Can take with you when leave
- Flexible: Adjust coverage and premiums
- Employee pays: Typically employee-paid (after-tax)
- Supplemental: Addition to basic group term
Group underwriting:
- Participation requirements: Minimum percentage must enroll
- Employer pays large portion: Ensures broad participation
- Pre-existing conditions: Usually covered immediately
- No individual evidence: Most don't require medical exams
Characteristics needed:
1. Group formed for purpose other than insurance: Employment, association membership
2. Minimum size: Typically 10+ employees (varies by state)
3. Flow of persons: People join and leave group
4. Automatic determination: Amounts determined by formula, not individual selection
5. Minimum participation: Usually 75% if contributory
Non-Contributory:
- Employer pays 100%: All premiums paid by employer
- 100% participation: All eligible employees covered
- No evidence required: Guaranteed issue
- More attractive: Better employee benefit
Contributory:
- Employees pay part: Share premium cost through payroll deduction
- Minimum participation: Typically 75% must enroll
- May require evidence: If don't enroll during eligibility period
- More common: Shares cost burden
Example:
Non-contributory:
Employer pays: 100% of premium
Participation: 100% (all employees covered)
Evidence of insurability: None required
Contributory:
Employer pays: 60% of premium
Employee pays: 40% (payroll deduction)
Participation requirement: 75%
Evidence if late enrollment: May be required
Typical requirements:
- Full-time employment: Minimum hours (e.g., 30 hours/week)
- Waiting period: 30-90 days before eligible
- Active at work: Must be actively working
- Employee class: May limit to certain classes
Initial eligibility period:
- 31 days: From eligibility date
- No evidence: Guaranteed issue during this window
- Late enrollment: May require medical underwriting
Open enrollment:
- Annual: Once per year
- Increase coverage: Elect additional or different amounts
- Evidence may be required: For increases
Must be working on effective date:
- Not sick or disabled: Must be at work
- If absent: Coverage delayed until return to work
- Protects insurer: Prevents adverse selection
Example:
Employee eligible: January 1
Out sick: January 1-15
Returns to work: January 16
Coverage effective: January 16 (when actively at work)
Not: January 1
Coverage terminates when:
- Employment ends: Quit, fired, laid off
- Retirement: Unless retiree coverage offered
- Eligibility lost: Drop below minimum hours
- Master policy ends: Group plan terminated
Right to convert to individual policy:
Example:
Group coverage: $200,000
Employee terminates: June 1
Conversion period: 31 days (through July 1)
Within 31 days:
- Can convert up to $200,000
- No medical exam required
- Premium based on age 45 (current age)
- Whole life policy
Estimated premium:
Age 45, $200,000 whole life: ~$4,000/year
(Much higher than group term, but guaranteed issue)
Coverage continues:
- 31-day extension: If die within 31 days
- Death benefit paid: Even if didn't convert
- Group amount: Pays group coverage amount
- Protects employee: Grace period for conversion
Optional coverage:
- Spouse life insurance: Coverage on employee's spouse
- Child coverage: All children under one rider
- Lower amounts: Typically $10,000-50,000
- Employee-paid: Usually contributory
Child coverage typical terms:
Birth to 6 months: $1,000-2,000
Age 6 months to 19 (or 26 if student): $10,000
All children: One premium covers all
Conversion: Children can convert at age 21/25
Pay off debt if borrower dies:
- Lender is beneficiary: Bank, finance company, credit union
- Decreasing coverage: Matches declining loan balance
- Short-term: Term of loan (1-10 years typically)
Credit life (death benefit):
- Pays loan balance: If borrower dies
- Protects lender: Ensures loan repaid
- Protects borrower's estate: Debt doesn't burden heirs
Credit disability:
- Pays loan payments: If borrower becomes disabled
- Monthly benefit: Covers monthly payment
- Limited duration: 12-24 months typically
Group basis:
- Group policy: Lender is master policyholder
- Certificates: Each borrower gets certificate
- Simplified underwriting: Often guaranteed issue
- Decreasing term: Coverage decreases with loan balance
Example:
Car loan: $30,000
Term: 5 years
Monthly payment: $550
Credit life coverage:
Initial: $30,000
Year 1: $24,000 (remaining balance)
Year 2: $18,000
Year 3: $12,000
Year 4: $6,000
Year 5: $0 (loan paid off)
If borrower dies year 2:
Benefit paid: $18,000 (to lender)
Loan: Paid in full
Estate: No debt
Heavily regulated:
- Premium limits: Maximum rates set by state
- Voluntary: Must be optional, not required
- Disclosure: Terms must be clearly disclosed
- Refunds: Pro-rata refund if loan paid early
- Cannot require: Lender cannot require as loan condition (must be voluntary)
Hybrid individual/group:
- Individual policies: Separate policy for each person
- Group enrollment: Sold through employer or association
- Simplified underwriting: Less stringent than true individual
- Employee-paid: Payroll deduction
- Portable: Can keep if leave group
Group life insurance provides coverage for multiple people under a single master policy. It's commonly offered by employers as an employee benefit and has distinct features compared to individual life insurance.
Single master policy covering a group:
- Master policy: Issued to group policyholder (employer, association, creditor)
- Individual certificates: Each covered person receives certificate of insurance
- Group underwriting: Minimal or no individual medical underwriting
- Lower cost: Generally less expensive than individual policies
Policyholder (Master Policyholder):
- Owns the master policy: Employer, association, union, creditor
- Pays premiums: Often pays all or part
- Administers plan: Handles enrollment, changes, claims
Insured/Certificate Holder:
- Covered individual: Employee, member, borrower
- Receives certificate: Proof of coverage document
- May pay portion: Through payroll deduction
Beneficiary:
- Receives death benefit: Person(s) designated by insured
- Insured chooses: Not the employer
Not a policy:
- Summary of coverage: Shows amount, effective date, beneficiary
- Evidence of coverage: Proof individual is insured
- References master policy: Full terms in master policy
- Not a contract: Master policy is the contract
Contains:
- Coverage amount
- Effective date
- Beneficiary designation
- Conversion rights
- Claims procedures
Most common type:
Flat amount:
All employees: $50,000
Simple, easy to administer
Multiple of salary:
Coverage: 1×, 2×, or 3× annual salary
Employee earning $60,000: $120,000 coverage (2× salary)
Higher earners get more coverage
Position schedule:
Executives: $500,000
Managers: $250,000
Supervisors: $100,000
Employees: $50,000
$50,000 Exclusion (IRC § 79):
- First $50,000: No taxable income to employee
- Over $50,000: Imputed income based on IRS Table I
- Employer deducts: All premiums as business expense
Example:
Employee coverage: $150,000
Employee age: 50
Table I rate (age 50-54): $0.23 per $1,000 per month
Taxable coverage: $150,000 - $50,000 = $100,000
Monthly cost: ($100,000 ÷ $1,000) × $0.23 = $23
Annual imputed income: $23 × 12 = $276
Employee reports: $276 as additional taxable income
Permanent insurance:
- Accumulates: Builds paid-up insurance each year
- Cash value: Some cash value accumulation
- Combination: Often combined with term for full benefit
Permanent coverage option:
- Portable: Can take with you when leave
- Flexible: Adjust coverage and premiums
- Employee pays: Typically employee-paid (after-tax)
- Supplemental: Addition to basic group term
Group underwriting:
- Participation requirements: Minimum percentage must enroll
- Employer pays large portion: Ensures broad participation
- Pre-existing conditions: Usually covered immediately
- No individual evidence: Most don't require medical exams
Characteristics needed:
1. Group formed for purpose other than insurance: Employment, association membership
2. Minimum size: Typically 10+ employees (varies by state)
3. Flow of persons: People join and leave group
4. Automatic determination: Amounts determined by formula, not individual selection
5. Minimum participation: Usually 75% if contributory
Non-Contributory:
- Employer pays 100%: All premiums paid by employer
- 100% participation: All eligible employees covered
- No evidence required: Guaranteed issue
- More attractive: Better employee benefit
Contributory:
- Employees pay part: Share premium cost through payroll deduction
- Minimum participation: Typically 75% must enroll
- May require evidence: If don't enroll during eligibility period
- More common: Shares cost burden
Example:
Non-contributory:
Employer pays: 100% of premium
Participation: 100% (all employees covered)
Evidence of insurability: None required
Contributory:
Employer pays: 60% of premium
Employee pays: 40% (payroll deduction)
Participation requirement: 75%
Evidence if late enrollment: May be required
Typical requirements:
- Full-time employment: Minimum hours (e.g., 30 hours/week)
- Waiting period: 30-90 days before eligible
- Active at work: Must be actively working
- Employee class: May limit to certain classes
Initial eligibility period:
- 31 days: From eligibility date
- No evidence: Guaranteed issue during this window
- Late enrollment: May require medical underwriting
Open enrollment:
- Annual: Once per year
- Increase coverage: Elect additional or different amounts
- Evidence may be required: For increases
Must be working on effective date:
- Not sick or disabled: Must be at work
- If absent: Coverage delayed until return to work
- Protects insurer: Prevents adverse selection
Example:
Employee eligible: January 1
Out sick: January 1-15
Returns to work: January 16
Coverage effective: January 16 (when actively at work)
Not: January 1
Coverage terminates when:
- Employment ends: Quit, fired, laid off
- Retirement: Unless retiree coverage offered
- Eligibility lost: Drop below minimum hours
- Master policy ends: Group plan terminated
Right to convert to individual policy:
Example:
Group coverage: $200,000
Employee terminates: June 1
Conversion period: 31 days (through July 1)
Within 31 days:
- Can convert up to $200,000
- No medical exam required
- Premium based on age 45 (current age)
- Whole life policy
Estimated premium:
Age 45, $200,000 whole life: ~$4,000/year
(Much higher than group term, but guaranteed issue)
Coverage continues:
- 31-day extension: If die within 31 days
- Death benefit paid: Even if didn't convert
- Group amount: Pays group coverage amount
- Protects employee: Grace period for conversion
Optional coverage:
- Spouse life insurance: Coverage on employee's spouse
- Child coverage: All children under one rider
- Lower amounts: Typically $10,000-50,000
- Employee-paid: Usually contributory
Child coverage typical terms:
Birth to 6 months: $1,000-2,000
Age 6 months to 19 (or 26 if student): $10,000
All children: One premium covers all
Conversion: Children can convert at age 21/25
Pay off debt if borrower dies:
- Lender is beneficiary: Bank, finance company, credit union
- Decreasing coverage: Matches declining loan balance
- Short-term: Term of loan (1-10 years typically)
Credit life (death benefit):
- Pays loan balance: If borrower dies
- Protects lender: Ensures loan repaid
- Protects borrower's estate: Debt doesn't burden heirs
Credit disability:
- Pays loan payments: If borrower becomes disabled
- Monthly benefit: Covers monthly payment
- Limited duration: 12-24 months typically
Group basis:
- Group policy: Lender is master policyholder
- Certificates: Each borrower gets certificate
- Simplified underwriting: Often guaranteed issue
- Decreasing term: Coverage decreases with loan balance
Example:
Car loan: $30,000
Term: 5 years
Monthly payment: $550
Credit life coverage:
Initial: $30,000
Year 1: $24,000 (remaining balance)
Year 2: $18,000
Year 3: $12,000
Year 4: $6,000
Year 5: $0 (loan paid off)
If borrower dies year 2:
Benefit paid: $18,000 (to lender)
Loan: Paid in full
Estate: No debt
Heavily regulated:
- Premium limits: Maximum rates set by state
- Voluntary: Must be optional, not required
- Disclosure: Terms must be clearly disclosed
- Refunds: Pro-rata refund if loan paid early
- Cannot require: Lender cannot require as loan condition (must be voluntary)
Hybrid individual/group:
- Individual policies: Separate policy for each person
- Group enrollment: Sold through employer or association
- Simplified underwriting: Less stringent than true individual
- Employee-paid: Payroll deduction
- Portable: Can keep if leave group