Group life insurance policies allow groups of co-workers or team members to get life insurance benefits together as a group. These policies differ from individual life insurance policies by not individually underwriting each of them. Instead, they are underwritten as an entire group. The mortality risk is assumed for the group and never on an individual basis.
This type of insurance gives employees or members of labor unions an attractive option in which to secure an award amount in the future. They get to name their own beneficiaries and are issued "certificates" that validate their insurance coverage.
Group Life Insurance and the Corporate World
In large companies, like that of General Motors for example, the company provides their employees with group life insurance policies. While statistically, the average GM worker is healthier than the average member of the American population, there will be members of this group that are less healthy and simply get a free ride based on the health of the other workers. But, all in all, group insurance works out well for the insurance companies. They get a great number of active participants to their health insurance plan and because they are usually workers, the health risks to the people who participate in the plans are minimal. This converts to lots of award amounts that won't need to be paid early and allows for the most contributions to the insurance plan as possible.
In a similar fashion, a group of airline pilots may have a slightly riskier job but remain healthier than the majority of the rest of the population. This means they are less likely to experience death early, which means more premium payments for the insurance company. Insurance companies love group policies and the companies who take part in them.
Facts and Numbers
Group life insurance policy rates are also usually cheaper than individual policies. This is because the risk to the insurance company is much lower as a whole and they take in much more premium payments than they would otherwise.
However, in recent years things have changed a bit. Some companies require that underwriting be done on an individual basis, just like in individual policies. More people would shirk their responsibilities to the insurance company and take part in riskier behaviors. This would increase the mortality risk and ultimately provide less premium payments to the insurance company.
In an effort to make employment opportunities more attractive, employers may allow workers to keep their insurance policy active even after they leave the company. This is done through the conversion of a group policy into an individual policy. The premiums that have been paid remain active and the insurance coverage continues, albeit a little differently. Most often, it's only the people who are otherwise uninsurable who choose to convert their policies after leaving.
Because the life insurance policy is based on continued employment, the great majority of group life insurance policies are term. Offering a permanent life insurance policy through the company wouldn't make financial sense to the employer or the insurance company, so term coverage became the driving force behind group insurance coverage. Plus, permanent coverage would get very costly to the members of the employment team group policy.
Group life insurance is an effective way of ensuring a great deal of people within a work force and keeping costs to the insurance company down. Regardless of the circumstance, most employers only employ people who are very healthy, productive workers. This means that they intake far more premium payments than they will have to end up paying out in award amounts. It's just a statistical truth that keeps insurance company profits healthy and in business.