Term life basics
Group Term Life Insurance vs. Individual Term: What's the Difference?
Group term life insurance comes through your job, often pays one or two times salary and usually ends when you leave. How it compares to individual term.
Reviewed by Brian Carrozzi
Founder, RestAssured · Licensed life insurance agent
Updated · How we write and review
Short answer: Group term life insurance is coverage you get through your job (or a union or association), usually with a death benefit tied to your salary and few or no health questions. The main differences from an individual term policy are ownership and portability: the group plan belongs to your employer and typically ends when you leave, while an individual policy is yours and stays in force as long as you pay the premiums. Some people have both.
What is group term life insurance?
It’s life insurance offered to a group of people under one policy. The Texas Department of Insurance (TDI) says “some employers and groups – like churches, unions, and other associations –” offer group life insurance to their employees and members, and that “most group life insurance is term life.”
Because “risk is based on the whole group, not on one person,” TDI says the cost “is usually cheaper than for a policy you buy directly from an insurance company.” Employers that offer it as a perk “must make it available to all their employees and members regardless of age or health.”
The California Department of Insurance adds that many employers “sometimes pay part or all of the premium.” Plans often have two layers:
- Basic coverage, frequently paid by the employer. TDI says a basic group policy “usually has a death benefit equal to one or two times your annual salary.”
- Supplemental or optional coverage, which you can buy through payroll deduction for yourself and sometimes for a spouse or children. Amounts, limits and prices vary by employer and plan.
How is group term life different from an individual term policy?
If you want the basics of individual coverage first, see what term life insurance is and how it works.
| Group term life (through work) | Individual term life | |
|---|---|---|
| Who holds the policy | Your employer or group holds the master policy; you’re covered under it | You own the policy |
| Coverage amount | Often tied to salary; TDI says basic coverage is usually one or two times your annual salary | You choose the amount, subject to the insurance company’s approval |
| Health questions | TDI says you usually don’t have to answer health questions or take a medical exam “unless you want more coverage than the basic group policy provides” | Typically requires health questions, and sometimes an exam, depending on the insurance company and amount |
| Price | Often low or free for basic coverage; supplemental rates vary by plan | Based on your age, health, the amount and the term you choose |
| How long it lasts | TDI says coverage “typically ends when you leave your job” | Lasts for the term you choose, as long as you pay premiums |
| When you leave a job | Many plans offer conversion or portability, often with deadlines | No change; the policy isn’t tied to your employer |
The biggest practical difference is control. With an individual policy, you pick the amount and the length, and the coverage doesn’t depend on keeping a particular job.
What happens to group life insurance when you leave your job?
TDI is direct: “If you get life insurance through your employer, coverage typically ends when you leave your job.” The National Association of Insurance Commissioners (NAIC) says that “if you leave the employer, you may not be able to take this coverage with you.”
Many plans offer one or both of these options:
- Conversion. You switch your group coverage to an individual permanent policy. The California Department of Insurance says that “under California law, group life insurance must be convertible to permanent insurance at the insured’s option” when your group coverage ends. It also warns that “the converted policy will probably be much more expensive than the group insurance.” Rules vary by state.
- Portability. Some plans let you keep term coverage at group-style rates after you leave. Whether this is offered, and for how long, depends on the plan.
Both options usually come with a short window to apply after coverage ends. Ask your plan administrator for the deadline and the cost before your last day, so you can compare it with an individual policy.
How do you name or change a group term life insurance beneficiary?
Your beneficiary on a group plan is set through your employer’s plan, not through your will. To name or update it:
- Contact your benefits office or plan administrator, or log in to your benefits portal.
- Fill out the plan’s beneficiary designation form. List primary and contingent (backup) beneficiaries and the percentage each should receive.
- Ask for written confirmation that the form is on file.
The NAIC recommends you “review your beneficiaries every few years,” especially after major life events. It also notes that “insurance companies won’t pay a minor,” and suggests considering your estate or a trust instead of naming a young child directly. If no beneficiary is named, TDI says “the company will pay the death benefit to your estate.”
Supplemental spouse or child coverage often has its own rules about who receives the benefit, so ask how that coverage pays out too.
Is group term life insurance over $50,000 taxable?
Often, yes, though not in the way you might expect. The Internal Revenue Service (IRS) says federal tax law “provides an exclusion for the first $50,000 of group-term life insurance coverage.” Above that, “the imputed cost of coverage in excess of $50,000 must be included in income,” using the IRS Premium Table. The IRS says this amount “is subject to Social Security and Medicare taxes.”
In Publication 15-B, the IRS tells employers to report this amount on the employee’s Form W-2 in box 12 with code C. The amount included is reduced by what the employee paid toward the coverage.
For family coverage, the IRS says employer-paid coverage on a spouse or dependent “is not taxable to the employee if the face amount of the coverage does not exceed $2,000.”
Tax rules have exceptions, and RestAssured doesn’t give tax advice. Ask a tax advisor how these rules apply to you.
Is employer life insurance enough?
The NAIC says that “while you may have free or low-cost life insurance through your employer, the death benefit usually is less than you need.” A salary-based benefit may not cover a mortgage, years of lost income and future costs like child care or education.
That’s why some people have both: the group plan as a low-cost base, plus an individual term policy sized to their family’s needs and owned outright. Others are comfortable with group coverage alone. It depends on your debts, savings and how long others rely on your income. If a mortgage is your main concern, compare mortgage protection vs. term life insurance.
What should you check in your group term life plan?
Use this checklist when you review your benefits packet:
- Basic amount. Is it a flat amount or a multiple of salary?
- Supplemental options. How much more can you buy, and above what amount do you have to answer health questions?
- Cost changes. Does the supplemental rate go up as you reach older age brackets?
- Spouse and child coverage. What amounts are available, and who is the beneficiary?
- Beneficiary form. Is it current, with primary and contingent beneficiaries named?
- Leaving the job. Does the plan offer conversion or portability, and what is the deadline?
- Taxes. Is coverage above $50,000 showing as imputed income on your pay stub?
- The gap. How does the group amount compare with what your family would need?
If you buy an individual policy, keep your existing coverage in place until the new policy is approved and in force. A licensed agent can help you compare an individual term policy with what your group plan already provides. Here’s how calling RestAssured works.
RestAssured is a brand of All Phone Leads, Inc. RestAssured is not an insurance company or an insurance agency and isn’t affiliated with any government agency. RestAssured connects callers with independently licensed insurance agents.
Frequently asked questions
What is group term life insurance?
Group term life insurance is life coverage offered through an employer or another group, such as a union or association. The Texas Department of Insurance says most group life insurance is term life, and the risk is based on the whole group rather than on one person.
What happens to group life insurance when you leave your job?
The Texas Department of Insurance says coverage typically ends when you leave your job. Many plans let you convert to an individual policy or continue coverage for a limited time, so ask your plan administrator about deadlines before your last day.
How do I change the beneficiary on my group term life insurance?
Contact your employer’s benefits office or plan administrator and fill out the plan’s beneficiary form. The plan pays based on the beneficiary designation it has on file, so update it after marriage, divorce, a birth or a death in the family.
Is employer life insurance enough?
It may not be. The NAIC says that while you may have free or low-cost life insurance through your employer, the death benefit usually is less than you need.
Is group term life insurance over $50,000 taxable?
Usually, yes. The IRS says the imputed cost of employer-provided coverage in excess of $50,000 must be included in income, so check your pay stub or Form W-2 and ask a tax advisor how it applies to you.
Sources
- Group-term life insurance, Internal Revenue Service
- Publication 15-B, Employer's Tax Guide to Fringe Benefits, Internal Revenue Service
- Life insurance guide, Texas Department of Insurance
- Life Insurance Guide, California Department of Insurance
- Life Insurance Buyer's Guide, National Association of Insurance Commissioners
This article is for general education. Policy features, prices and eligibility vary by insurance company and state; your agent will explain the specific terms of any policy before you apply.