How to Calculate Group Term Life Insurance

Group life insurance is a type of term life insurance that employees buy through their employer. No health exam is needed. The employee is limited as to the amount of death benefit he or she can buy. When you are considering buying group term life insurance for your company, it's important you understand how group policies are calculated.

 1. Understand the distribution of employees' salaries. The first thing to take into consideration when estimating group term life insurance costs and benefits is your employees' earnings. The amount of term life insurance they are offered under these programs is typically a flat amount per employee based on their income level, or a percentage of the employee's annual income.

 2. Establish a policy on coverage amounts for your employees' life insurance benefits. Set the limit on the amount of life insurance your employees can purchase. The maximum limit for each employee is usually based on his or her level within the company. This means that you can set an amount of life insurance coverage for employees in lower level ranks of compensation, and a higher maximum amount for employees in the executive positions. Alternatively, you can establish a flat benefit amount. This sets a flat amount of coverage employees can buy, no matter their income level or position. This is the simplest method to calculate the cost and coverage benefits for your company's employees, as it is simply the number of employees covered times the rate per employee for premiums or the flat amount of coverage for benefits.  

3. Determine whether the company will provide a contribution to the premium amounts for the group term life insurance benefit as an additional piece of compensation and benefits.

4. Get multiple quotes from company benefits brokers for this kind of coverage, and factor these costs into your calculation.  

Then you should have all the information necessary to calculate the cost of group term life insurance benefits for your employees, and you will know the cost to each employee and to the company if a company contribution is chosen. Company benefits brokers will do these calculations for you as part of their service.