Basic life insurance coverage is a great way to take care of your loved ones financially after you pass away. Group life insurance is a specific type of life insurance typically offered by a large organization to its members. Large companies often offer this coverage to their employees as part of its benefits package.
While the death benefit for group life insurance is typically fairly small, employees of companies that offer the coverage often only pay a small contribution toward the policy from their salary. Below, we explain what group term life insurance is, how it works and whether it’s worth it.
- Group term life insurance may be a great choice for those who want low premiums. However, keep in mind that it is difficult to tailor these policies and the death benefit may be low.
- If you are looking for a stable policy with a guaranteed death benefit that will be paid to your beneficiaries, you may want to look at other policy options. Group term life insurance ends when you leave your employer.
What is group term life insurance?
Most often seen as an employment benefit, group term life insurance is an affordable way to sign onto a life insurance policy by offsetting the costs through group participation. When an employer offers life insurance options to their employees, it will usually be in the form of a group term life insurance policy.
Because these group policies represent a significant amount of business bundled together through one primary plan, insurance companies can provide them for lower rates. Not only that, but it is common for employers to subsidize these premiums, at least in part. As a result, buying into a group term life insurance policy is generally less expensive than purchasing the same policy benefits on your own.
So, what is group life insurance? It is a multi-policy approach to term life insurance that simplifies the process, reduces the cost and is often provided and subsidized as an employee benefit.
How does group life insurance work?
As a form of term life insurance, these policies only last for a set number of years before they must be renewed. During this time, the price can fluctuate depending on several variables, including average health and age of the company employees, changes in state laws and changes in internal insurance company policies.
When you sign onto a group life insurance policy with an employer, you will be given a copy of your coverage details and, in most cases, will make a monthly premium payment. These premiums will usually be lower than what you would pay if purchasing an equivalent policy from the insurance company on your own. In the case of death, your life insurance will make a payout to your listed beneficiaries.
In the case of leaving a company that you have this type of policy through, you will usually have the option of converting your plan to an individual type. However, these conversions can often be more expensive than it is to start a new term policy on your own.
Who is eligible for group life insurance?
Employees or members who elect group life insurance through their company or organization are eligible for group life insurance. Some organizations will allow you to participate in group life insurance only after a probationary period. Keep in mind that if you leave the company or organization, your coverage will typically end either immediately or within a few weeks.
Is group term life insurance worth it?
Group life insurance comes with pros and cons. It can be significantly cheaper than alternatives, as the insurer offers lower premiums and the employer generally subsidizes this further. You will likely feel more comfortable having group term life insurance than no life insurance at all, especially in situations where the employer fully covers the cost.
However, group life insurance is limited by its nature. When a policy is designed well for a diverse group of people, it will rarely cater to all the individual needs within that group. This can lead to paying for coverage you don’t want and not getting the coverage that you do want. Further, you lose the ability to tailor your premium payments and death benefit payout to your needs and situation. Additionally, the death benefit is typically relatively low.
You may be able to purchase supplemental life insurance from your employer. However, if you decide you need more coverage or coverage tailored to your needs, you may want to consider the following life insurance policies:
- Term life insurance: Term life insurance is limited by time but can provide some of the best ratios of premiums to benefits. Term life insurance policies are drafted for a specific number of years before they must be renewed, at which point the rates may rise.
- Universal life insurance: Universal life insurance is the inverse of term. These policy types are drafted to cover the entire lifespan of the insured individual, making them a form of ‘permanent’ life insurance. Universal offers leeway and customization when it comes to premium costs and death benefits.
- Whole life insurance: Like universal life insurance, whole life insurance is a type of permanent life insurance. The main difference between the two is that whole life provides consistent premiums and cash value guarantees, while universal instead offers flexibility around premiums and death benefits.
- Permanent life insurance: Permanent life insurance policies are those that last for the duration of the insured individual’s life, provided payments are maintained. In general, most policy types outside of term life insurance are examples of permanent life insurance.
- Mortgage life insurance: Mortgage insurance protects the surviving homeowner in the situation that their spouse or partner dies. Instead of a traditional death benefit, this insurance policy will pay off the remainder of the mortgage loan, usually tax-free.
- Final expense life insurance: Final expense insurance is specifically to cover some of the costs associated with death. In general, this is used to guarantee that funeral expenses can be covered without creating a financial burden on the surviving family members.
If group insurance isn’t what you’re looking for, consider one or more of these other options.
Why you may need additional coverage
Group term life insurance policies are generally limited in their coverage. Depending on your employer and their insurance company, you may be able to purchase expanded coverage through your existing policy with them. However, in many cases, it can be necessary to purchase an additional individual life insurance policy to supplement the group plan offered by your employer.
For single people with no dependents, the group policy may offer sufficient coverage. However, for families and those with dependents, these term policies are often too limited in their benefits. In these cases, it can be wise to take out a larger individual plan to ensure that your beneficiaries will receive a large enough payout to meet their needs.
Frequently asked questions
How long does my group term life insurance last?
It only lasts as long as your employer continues to renew the policy and only for as long as you remain employed with that employer. One of the drawbacks to these policy types is that they follow the group and not the individual, so if you leave the company, you will be leaving your policy behind.
What are the alternatives to group term life insurance?
There are many types of life insurance available. Most people can benefit from an individual term life insurance plan if they are looking for a policy with significant death benefits. For those trying to cover specific expenses, a mortgage life insurance policy or a final expense policy may be best.
Is group term life insurance a good fit for me?
If you don’t currently have enough life insurance coverage and you have the option of group term life insurance, it can be a good idea. First, shop around and compare the cost and benefits of the group term policy against those of individual options. However, if your employer offers a group term policy and covers all or most of the premium, it could be an excellent deal.
Can I purchase my own life insurance policy even if I have group term life insurance through my employer?
Yes, you can purchase as many life insurance policies as you want. If you want a larger death benefit, you may be interested in purchasing whole or universal life insurance. If you want life insurance for special scenarios, such as receiving a payout for getting a chronic illness or for your spouse dying, you may want to consider purchasing specific life insurance riders.