 Personal Finance PowerPoint Presentation Group term, life insurance. Prepare to get financially fit by practicing personal finance. Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process in place, looking something like set the goals, develop a plan to reach them, put that plan in action, review the results, repeat the process periodically. Most of this information can be found at Investopedia, Group Term, Life Insurance, which you can find online. Take a look at the references, resources, continue your research from there. This is by Julia Kagan, updated December 24, 2021 in prior presentations. We've been taking a look at insurance in general. We're moving on then to the life insurance, focusing this time on term life insurance. So we've talked about some different components or different types of life insurance in prior presentations. Now we're focusing in on what is group term life insurance. Group term life insurance is a type of term insurance in which one contract is issued to cover multiple people. So if you've got the one coverage, you've got multiple people, which you might label as a group. Hence the name, group term life insurance. The most common group is a company where the contract is issued to the employer who then offers coverage as a benefit to employees. Many employers provide at no cost a base amount of group coverage as well as the ability to purchase supplemental coverage and coverage for employees, spouses and children. Group term life insurance is relatively inexpensive compared to individual life insurance as a result participation is high. So in other words, if you think about the actual real calculation, if you got like a group type of policy, you might get a benefit due to the group nature and the impact on the actuarial calculation, possibly lowering risk to the insurance company, which could be a good deal, a good situation, something that might be provided by say an employer. How does group term life insurance work? About 80% of companies offer company paid group life insurance as a benefit reports the Society for Human Resource Management. Group life insurance policies are generally written as term insurance and offered to employees who meet eligibility requirements such as being a permanent employee or 30 days after hire. Group term life insurance coverage can be adjusted for qualifying life events or during an open enrollment period. The standard amount of coverage is usually equivalent to the covered employee's annual salary. Employers typically pay most or all of the premiums for basic coverage additional amounts ordinarily in multiples of the employee's annual salary. So that's going to be kind of the baseline because obviously this is tied into the work. So that's one of the kind of calculations we can have in terms of the salary for the calculation of the benefit calculation. So are usually offered for an extra premium paid by the employee. Insured members receive certificates of insurance as proof of coverage as with individual life insurance insured parties choose their beneficiaries. So obviously we're going to choose in the event that they die who's going to be the beneficiary for the insurance. Advantages and disadvantages of group term life insurance. Group term coverage is generally inexpensive which is nice especially for younger people and participants may not be required to go through underwriting as all eligible employees are automatically covered. That's nice. However, unlike individual term insurance plans which typically look in a rate, lock in a rate for 20 to 30 years most group plans have rate bands in which the cost of insurance automatically goes up in increments for example at ages 30, 35, 40, etc. So when you buy just the term life insurance you might be trying to purchase it for a set term having the premiums be locked in for that timeframe say 20 to 30 years on the insurance company side they got to do their actuarial calculation to come up with the appropriate premium even though the risk to them is going up as you get older and so if you're talking about the group they might be doing their adjustments at kind of set increments which could have an impact on how much you're paying in after saying 30, 35, and 40. So the premiums for each rate band are outlined in the plan document so you can have the information for the plan document for the band so while inexpensive in many cases the amount of coverage offered by group life insurance may not be enough and should be combined with an individual plan so you might be saying well that's nice that my employer does that it's cheap I might basically go into that and use that but one annual salary might not be sufficient say to pay the mortgage or to pay the amount of needs that my family might have if they were dependent on me at that point in time so you might then supplement that with some other life insurance perhaps employers or association groups offering the insurance often limit the total coverage available to employees or members based on things like tenure based salary number of dependence and employment statuses such as full-time associate or executive with the amount available available coverage varying by group so obviously when they're offering these group benefits it will be dependent upon certain things such as are you a salary employee are you a full-time employee or part-time employee for example most commonly employers offer multiples of an employee salary or fixed amounts such as $20,000 or $50,000 many group plans only cover an individual's base salary other forms of compensation may be excluded such as bonuses, commissions, reimbursement or incentives that are reported as income for example an auto reimbursement or restricting stock award so for a lot of people the base salary might be reflective of what they actually receive but many people might get that big bonus like at the end of the year which is a significant part and if that's not in the annual insurance calculation then that wouldn't be you know in the insurance kind of component to it commissions and things like that can obviously add a level of complexity to the calculations as well another reason group insurance should be considered supplemental is that it's contingent upon employment so obviously you're getting this through the employer if you stop working for the employer then you might have some break in the insurance at that point so coverage automatically ends when an individual's employment terminates and at that point it may be harder or more expensive to get individual insurance so in other words if you're kind of dependent you're dependent on the life insurance there and you got the life insurance but at a later point in time you're going to be older and you might have health conditions could come into play which would mean that if you buy the life insurance after you are terminated from say a place of employment therefore losing the life insurance it might be more difficult to get the insurance at that point in time therefore it might be good to have the insurance through the company which is nice but also possibly have the individual plan a term plan or something like that as well in the event that you leave that place so that you could still get you know the coverage so some insurers do offer the option to continue the coverage by converting the group term to an individual permanent policy which is nice if you have that component might be something to look into and say if I'm not working here anymore and I get the life insurance am I able to convert it from the group to the individual policy the conversion options vary the conversion options vary may not be automatic and could require underwriting consequently an individual could be rated and offered a policy with a much higher premium so obviously if they were going to do that you're changing the nature of the policy and so you might end up with a policy with a bigger premium also the policies available when converting may be limited and are not always the most competitive products requirements for group term life insurance typically all employees are automatically enrolled in the base coverage once they meet the eligibility requirements so that basically you got the benefit that might kick in depending on your employer if you meet the baseline such as possibly working full time or something like that requirements vary and can include working a certain number of hours per week or a certain amount of time as an employee the availability of supplemental group term coverage differs in some plans enrollment is only available when an individual is initially employed or upon a qualifying life event such as the birth of a child in other plans supplemental group term coverage can be added during open enrollment periods supplemental coverage may require underwriting usually it is a simplified underwriting process whereby insurance seeker answers some questions to determine eligibility rather than having to go through a physical exam the carrier then decides whether or not it will offer the additional coverage special considerations employers are allowed to provide employees with $50,000 of tax free group term life insurance coverage as a benefit now those benefits are often good from the employer because notice that if the employer is able to give benefits to the employee in such a way that they don't have the taxes involved that's going to be a benefit to the employee and the employer because the money will go further if you if you get this tax benefit for it so that's just something to keep in mind any amount of coverage above $50,000 that is paid for by an employer must be recognized as a taxable benefit and included on the employee's W2 so if it's included on the W2 in box one that would mean it would be a taxable item and you'd be paying taxes on it so if an employer does differentiate which is allowed by offering different amounts of coverage to select groups of employees the first $50,000 of coverage may become a taxable benefit to certain employees such as corporate officers compensated individuals or owners with a 5% or greater stake in the business even if a term policy is right for your current circumstances it's worth comparing your employer's offering with the plans of other firms to ensure you'll be receiving the best term life insurance policy possible it is also important to revisit the coverage you have selected during open enrollment to make sure the plan still fits so consider your employer sponsored group life insurance to be one piece of your insurance plan so obviously if you can get that insurance through your employer might be worth doing because you might get the tax benefit from it and it might be a cheap plan to have but it's probably not going to be something that's comprehensive enough to cover your full needs in the event that you say have a family that's kind of dependent on your mortgage or something like that you might then want to consider it as one component of your overall risk mitigation strategy with relation to life insurance so determine your total needs and understand how group insurance can play a part it makes sense to determine how much life insurance if any do I need so in other words are there people dependent on me right now do I have debt out are there funeral costs that I need to take care of or do I have a significant amount of assets at this point in time and if I died I'm kind of any people that are dependent on me or possibly nobody is really particularly dependent on me at this point so what kind of coverage term or permanent makes the most sense how long will you need to the coverage to stay in force so these are things obviously that you're going to be wanting to consider as you put together and construct your overall risk of mitigation strategy due to early death and people that might be dependent upon you the group coverage possibly coverage through an employer being one component if available