Group Life Insurance—Term Coverage

Traditionally, most group life insurance plans were designed to provide coverage during an employee's working years, with coverage usually ceasing upon termination of employment for any reason. Today, the majority of employees are provided with coverage that will continue, often at a reduced amount, when termination is a result of retirement. Group term life insurance, which provides preretirement coverage.

The oldest and most common form of group life insurance is group term insurance. Coverage consists primarily of yearly renewable term insurance that provides death benefits only, with no buildup of cash values. The group insurance marketplace, with its widespread use of yearly renewable term coverage, contrasts with the individual marketplace, in which term insurance accounts for slightly more than one-third of coverage in force. This is primarily due to increasing annual premiums, which become prohibitive for many insureds at older ages. In group life insurance plans, the overall premium, in addition to other factors, is a function of the age distribution of the group's members. While the premium for any individual employee increases with age, the flow of younger workers into the plan and the retirement of older workers tend to result in a relatively stable age distribution and, thus, an average group insurance rate that remains constant or rises only slightly.