If your employer offers life insurance coverage, you may have heard the term group universal life insurance in the past. Group universal life insurance is a form of permanent life insurance coverage that is marketed towards employers, who can then offer insurance to their employees as a fringe benefit. Typically, they will also offer term life insurance, which is a different type of coverage. Here’s what you need to know about group universal life insurance before purchasing it.
How Does Group Universal Life Insurance Work?
Insurance companies offer group universal coverage to employers and other groups. Employees will have the choice to buy into the life insurance policy as part of their benefits. In some cases, the employer may contribute some money towards the premiums due. An advantage to employees is that the price is often lower in a group policy over an individual policy because the risk is spread out over more people.
The coverage details will vary from company to company and there may be different premium costs, death benefit limits, and requirements to enroll. In some cases, the employer may even offer coverage for the employee’s family as well if the benefits package is very generous. Some companies will cover the cost of the life insurance premiums completely, while others will have the employee pay half or even all of the premium through payroll deductions. Even though it is deducted from payroll, it is generally deducted “after-tax” unless it is a qualified plan.
Employees will have the opportunity to choose how much coverage they want in most cases. Typically, the death benefit amount starts at the employee’s yearly salary, although the policyholder has the opportunity to purchase a larger policy, which also increases the monthly premiums that are due proportionally. Keep in mind that universal life insurance policies perform much better over time when they are funded at higher than minimum rates, so it is important to understand universal life insurance before you enroll in a policy.
From there, the policy works the same way any universal life insurance policy works. It is a form of permanent life insurance, which means it provides coverage for your entire life as long as you pay the premiums. In addition to the death benefit, it has a cash savings component. As you pay into the policy, it will start to accumulate cash value and earn interest. Employees can choose to contribute more cash to this savings portion as they see fit. They can also opt to withdraw the cash at any time. However, the policy has rules about when you can and cannot withdraw the cash savings, as well as any effects it may have on the policy death benefit or the tax effects. You’ll need to read your policy thoroughly before signing and work closely with an advisor to make sure you know exactly how the withdrawals work. When you pass away, your beneficiaries will receive the death benefit of the policy, which may be higher than the face amount depending upon how much cash accrued into the policy. If you accrue a high enough cash value you will not need to pay any more premiums into the policy to keep it in-force. This flexible funding feature makes universal life insurance attractive to some people.
What Are the Benefits of Group Universal Life Insurance?
If your company has a group universal life insurance policy, there are many advantages to taking advantage of this life insurance offering. The biggest advantage is that you may be able to save a lot of money on universal life insurance by going through a group policy, depending upon your age and health. Universal life insurance can be very expensive when you purchase it on your own, so group policies are a good way to get permanent coverage that you might not otherwise be able to afford.
Additionally, most group policies do not require an in-depth medical exam. When you purchase an insurance policy on your own, you need to complete an exam as part of your application process. Those with chronic health conditions are typically charged higher prices and may even be denied coverage completely! With a group policy, you’ll still have to answer health questions in order to get the policy, but your health won’t be as big of a deciding factor when it comes to your premium prices. This enables those who are not in great health to buy a universal life insurance policy at a great price.
Another potential advantage of group universal life insurance is that your company can opt to add extra benefits to your policy. One of the most common options is the option to tap into your death benefit if you are diagnosed with a serious chronic illness or are injured in an accident and require ongoing care. In this case, you can use the death benefit to pay for your medical expenses. This is known as an accelerated death benefit. There are other riders available as well such as disability income, waiver of premium, and term companion policies.
Disadvantages of Group Universal Life Insurance
There are also some distinct disadvantages to using group universal life insurance. The first is that while group policies are much cheaper than individual policies, they may not be as affordable as purchasing a term life policy on your own. This is because term life policies are significantly less expensive than permanent policies. If you’re young and healthy, you can get particularly affordable term life coverage. Although universal life insurance does have special flexibility and advantages over term life insurance, not everyone needs this type of coverage.
Also significant, there may be limits on the amount of coverage that you can purchase. If you want to expand your policy beyond what they offer, you will likely need to pay for it yourself. There may also be specific rules in the group policy that would not necessarily exist if you purchased the policy individually. In general, you won’t have as much flexibility when purchasing a policy through your employer as you would purchasing it on your own.
If you move employers, you may not be able to keep your group life insurance policy, although you would be able to withdraw the cash value. You can also keep the policy individually in most cases by porting the coverage. Portable coverage makes it easy to keep your policy, even if you leave the company or choose to retire. In most cases, there are rules to qualify for the coverage to be portable, such as being under age 70, having the coverage exist for at least 12 consecutive months, and not being disabled.
Final Word on Group Universal Life Insurance
If your company offers group universal life insurance, be sure to read all the details of your coverage options before making a commitment. You may also want to get a quote from other life insurance companies to see if you can get a cheaper rate elsewhere. Overall, group universal life insurance can be a good option. It’s a particularly good choice if your employer pays the premiums in full, or if they offer portable coverage. If you prefer permanent coverage, it’s one of the best ways to get it without paying full price.