Group term life insurance plans were traditionally designed to provide employees with preretirement life insurance coverage. At retirement, an employee was faced with the decision of whether to let coverage terminate or to convert to an individual policy at an extremely high premium rate. In recent years, however, an increasing number of group life insurance plans have been designed to provide postretirement as well as preretirement life insurance coverage. In some cases, this has been accomplished by continuing group term insurance coverage, often at a reduced amount, after retirement. In other cases, this has been achieved by means of life insurance that provides permanent benefits funded during employees' working years.
The popularity of various approaches for providing postretirement life insurance coverage has changed over time, primarily because of changes in tax laws. Older and once popular products such as group paid-up insurance and group ordinary insurance are no longer written. Newer products like group universal life insurance and group variable universal life insurance have come on the scene and grown in popularity. Four approaches that are currently used:
- Continuation of group term insurance
- Group universal life insurance
- Group variable universal life insurance
- Group term carve-outs
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