Group Universal Life Policy (GULP)

What it is

A group universal life policy is a type of permanent life insurance offered to a group—most commonly employees of a company—at lower per-person cost than an individual policy. It combines a death benefit with a cash-savings component that can grow over time.

Key features

• Permanent (lifelong) coverage with a death benefit payable to beneficiaries.
• Cash value account that typically begins accumulating after about one year and earns a minimum fixed interest rate.
• Employer-sponsored: premiums may be fully paid by the employer or shared with employees via pre-tax payroll deductions.
• Options to contribute additional lump sums or change contribution amounts, often without fees.
• May extend coverage to spouses and dependents, depending on the plan.

How it works

1. The employer purchases a single group policy that covers members of the group.
2. Individuals select coverage amounts (often expressed as multiples of salary) and pay any required premiums.
3. Premiums fund both the insurance cost and the policy’s cash-value account.
4. Cash value grows at a guaranteed minimum rate and can usually be withdrawn tax-free; policyholders may also leave funds to accumulate.
5. If premiums are paid, the policy pays the death benefit to designated beneficiaries.

Special considerations

• Cash value generally becomes available after about one year and grows at a fixed minimum rate.
• Withdrawals are typically available without tax penalties, though loans or large withdrawals can affect the death benefit and tax treatment.
• Group universal life policies do not pay dividends (unlike some participating whole-life policies).
• Increasing coverage beyond employer-offered limits often requires higher premiums and may trigger medical underwriting.

Advantages

• Lower cost per person than comparable individual policies due to group pricing.
• Easier access to guaranteed coverage or limited underwriting in some cases.
• Employer convenience: payroll deduction contributions and potential employer premium contributions.
• Potential employer-provided features, such as portability (ability to keep coverage after leaving employment), accelerated benefits for terminal illness, and waiver of premiums for total disability, if included in the plan.

Disadvantages

• Coverage can be lost if the job ends and the policy lacks a portability option.
• Employer plans may limit the amount of coverage available.
• To obtain more coverage than the group plan provides, the insured typically must pay more and may need a medical exam.
• Policy terms, interest guarantees, and portability provisions vary by plan and insurer—review plan documents carefully.

Frequently asked questions

Q: Who offers group universal life insurance?
A: Employers commonly offer it as an employee benefit. Some associations or organizations may also sponsor group policies.

Q: Can I access the cash value?
A: Yes—cash value usually becomes available after about a year and can often be withdrawn or borrowed against, typically without immediate tax penalties.

Q: Is the cash value invested in the stock market?
A: No. Group universal life cash value is generally placed in a guaranteed account that earns a fixed minimum interest rate; it does not receive dividends.

Q: What happens if I leave my employer?
A: If the plan includes portability, you may be able to keep the policy (possibly converting it to an individual policy). Without portability, coverage usually ends when employment ends.

Bottom line

Group universal life combines permanent death benefit protection with a tax-advantaged cash-accumulation feature at a lower cost per person than individual policies. It can be a valuable employee benefit, but coverage limits, portability, and policy terms vary—carefully review the employer’s plan documents and consider whether supplemental individual coverage is needed.