What is Group Policy Life Insurance? [2022]

Find out everything you need to know about group policy life insurance.

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Guide to Locked-in Retirement Accounts in Ontario

Find out everything you need to know about group policy life insurance.

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Group life insurance provides some coverage to you at no cost, but often not enough to guarantee comfort.

A unique type of life insurance is group policy life insurance. It offers coverage to multiple people through one policy and is typically offered by companies and employers as a benefit. The coverage is often minimal but comes at no cost to the individual being insured by the policy. Due to the low costs associated with this policy, it boasts high participation in larger corporations.

What is group life insurance?

Group life insurance is a unique branch of life insurance that issues coverage to multiple individuals within one policy. It is typically offered as term insurance meaning the coverage is temporary, but the cost is lower than other types of life insurance. The best life insurance companies offer group term life insurance typically provided in the form of a periodically renewable policy.

Types of group life insurance

There are four types of group life insurance currently in operation: employee basic life, employee optional life, dependent basic life and dependent optional life.

The key distinctions are usually made between the two employee life types and dependent life types. Employee life is the most basic option for group life insurance and provides coverage to the dependents of the employee in the event that the employee passes away. This differs from dependent life types as those provide coverage if any of the employee’s dependents pass away.

Here is more specific information on each of the types of group life insurance:

Employee Basic Life

Employee basic life pays a pre-specified amount of money, in the form of how much coverage is offered, in the event that the employee passes away. This money is provided to the dependents of the employee listed in the contract and is split accordingly. These rates are traditionally revised annually based on the premiums paid by the employer.

The amount of coverage is usually determined by the salary of the employee being covered.

The coverage is generally available in increments of $10,000. The maximum is usually capped at $250,000.

Employee Optional Life

Employee optional life provides employees with the opportunity to supplement the life insurance coverage provided by their employer. This means that employees will be allowed to add their own policies on top of the group life insurance offered by their employers in order to obtain more coverage for their loved ones in the event of them passing. However, this will require the employee to pay out of their own pocket for any additions to the policy.

The coverage is generally available in increments of $10,000. The maximum is usually capped at $250,000.

Dependent Basic Life

Dependent basic life is similar to employee basic life in that a pre-specified amount of money is paid, in the form of how much coverage is offered. The difference lies in that  it offers protection to the employee in the event that one of their dependents passes away. It is only available to the spouse and dependent children of an employee.

The coverage is typically $5,000 or $10,000 for a spouse, and $2,500 or $1,000 for each dependent child.

Dependent Optional Life

Dependent optional life provides employees with the opportunity to supplement the life insurance coverage provided by their employer. This means that employees will be allowed to add their own policies on top of the group life insurance offered by their employers in order to obtain more coverage for themselves in the event of their loved ones’ passing. However, this will require the employee to pay out of their own pocket for any additions to the policy.

The coverage is generally available in increments of $10,000. The maximum is usually capped at $250,000.

Who uses group life insurance?

Group life insurance policies are typically utilized by employers and corporations. It is offered by them as a benefit to their employees as a part of a benefits package. They are responsible for covering all the premium fees, with the exception of employees who wish to add to their policies and pay for the additional costs themselves. 

Around 81% of companies offer company-paid group life insurance as a benefit according to the Society of Human Resource Management. It is not linked to increased employee performance directly, however, studies have showcased that companies with plentiful benefits typically have higher employee satisfaction.

The statistics on who uses and what type of life insurance they use.

What are the requirements for group life insurance?

Employees are usually automatically applicable for the base coverage in the event that they meet the eligibility requirements. These requirements will vary from organization to organization, but typically include work hour requirements and role specifications.

What are the requirements for supplemental group life insurance?

Supplemental group term coverage is sometimes only available in the event of a qualifying life event. These will be large shifts such as the birth of a child or a recent marriage. Otherwise, they may also be available to be added during open enrollment periods.

Supplemental coverage also requires further underwriting. This is traditionally a simplified underwriting process to determine eligibility as opposed to a physical examination, similar to the underwriting process of no medical life insurance policies. The life insurance company will base their decision for additional coverage based on the answers to the questions they ask.

How does group life insurance work?

Group life insurance works in the same way as most other traditional life insurance policies in that you pay a monthly premium. In return, your dependents will receive monetary benefits in the case of unfortunate passing. The difference lies in that your employer will typically pay the premiums on your behalf, or deduct the cost of monthly premiums from your salary. The latter is rare.

How much coverage does group life insurance offer?

Life insurance coverage is typically directly correlated to your salary or a flat amount decided by the company. Earnings for the purpose of group life insurance coverage typically only include the salary in consideration. This type of earnings-based benefit will usually pay a benefit based on a multiple of the earnings, usually one or two times the annual salary.

A flat benefit schedule on the other hand does not pay a benefit based on the earnings. Instead, all those under the policy contract will have the same amount of coverage. This typically ranges from $25,000-$500,000 as determined by the employer. The different extremes of these ranges typically relate to the standing of the employee within the company.

Difference between group life insurance and term life insurance coverage amounts.

Pros and cons of group life insurance

Advantages of group life insurance include:

  • Easier underwriting process

  • Sometimes automatic coverage for eligible employees

Disadvantages of group life insurance:

  • Lower amounts of coverage

  • Limits on the total amount of coverage available

  • Contingent to employment

  • Tiered pricing model which increases in cost every few years

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Finding the right life insurance for you

The amount of coverage offered by group life insurance may be enough, but you could also need further coverage for your specific circumstance. It may be beneficial to speak to an advisor to determine the best path to reach your financial goals.

At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to create the best solution for you and your needs. We’ve been providing expert life insurance solutions since 2007, including no medical life insurance, term life insurance, and permanent life insurance, to build the best package to give you the protection you need.  

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, including areas such as Burlington, Oshawa and Waterdown

Frequently Asked Questions (FAQs)

Group life insurance coverage lasts until you leave the company. The policy is traditionally based on term life insurance meaning it is renewed yearly. In the event that your employment is terminated, the policy and coverage will be terminated alongside it.

Group life insurance premiums paid by the employer on behalf of an employee are taxable benefits, but the received benefits themselves are non-taxable.

This depends on your specific circumstance, but the answer is usually no. Most individuals seek life insurance that covers up to five or even ten times their annual salary in order to ensure ample financial coverage for their loved ones. Group life insurance typically only covers one to two times the annual salary.

In most cases, group life insurance policies are convertible to either a one-year convertible term policy, term to age 65 policy or a regular plan of permanent insurance.

Nearing the senior ages of retirement, group life insurance coverage typically decreases and terminates at age 70.

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