Group life insurance can be a more affordable way to secure a life insurance policy than going through a private insurer. Group life insurance policies are typically offered by employers as a part of their employee benefits package. Signing up for your employer’s group life insurance policy can be a quick and convenient way to help protect your family’s financial future in the event of your death, but it may not offer a large enough death benefit for some. Bankrate’s insurance editorial team explains the ins and outs of what group life insurance is to help you determine if it’s the right type of life insurance policy for your needs.

Key takeways

  • Group term life insurance may be a choice worth considering 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 policy with more customization options, it may be helpful to consider other policy options.
  • Group term life insurance generally ends when you leave your employer.

What is group term life insurance?

Group life insurance is a type of life insurance offered by employers and other large-scale entities, which can include associations or labor organizations, for example. This type of life insurance is generally offered as part of a benefits package along with health, dental and/or vision insurance. The cost of coverage for group life insurance is based on a discounted rate subsidized by the employer and offset by group participation. In many cases, this coverage is offered for free or at a cheap price.

In general, group life insurance policies will come with a lower coverage amount than individual life insurance policies. These types of policies do not require that the policyholder has a medical examination or be subject to individual underwriting. This can make it easier to get coverage, especially if you have a pre-existing condition that may make it difficult to qualify for individual life insurance coverage. You may even be able to elect to purchase additional coverage beyond the standard group life policy without a medical exam and at a discounted rate. Check with your employer to see what options are available.

How does group life insurance work?

Group life insurance policies are a form of term life insurance, which means that these policies only last for a set number of years before they must be renewed. At the time of renewal, the price can fluctuate depending on several variables, including the average health and age of the company employees, changes in state laws and changes in internal insurance company policies. Keep in mind that with group life insurance, your individual health and age will not be assessed by the life insurance company like it typically is with an individual policy, which is one big advantage of group life policies for older people or people who have health issues.

When you sign onto a group life insurance policy with an employer, you will be given a copy of your coverage details, and if your employer does not cover the cost, you will likely need to 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, or even free to you. In the event that you are responsible for part of the premium, it is usually automatically taken out of your paycheck

In the case of death, your life insurance will make a payout to your listed beneficiaries. If you leave a company that you have a group life insurance policy with, you may have the option of converting your plan to an individual policy before or shortly after your departure. However, this may not be an option for everyone, and it can help to talk about your options with an agent or your employer.

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?

It depends. Group life insurance 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, and is typically only available as multiples of your salary. For example, if your salary is $60,000 annually, your death benefit may only be $60,000 or $120,000, both of which may not be enough to cover your needs.

You may be able to purchase supplemental life insurance from your employer, which may be offered at a lower rate than an individual policy. Some supplemental group life coverage may not even require a medical exam, although if you elect for a significantly higher death benefit, you will likely be required to do a health assessment.

If you decide you need a higher death benefit or more customized coverage than the group life insurance at your workplace or organization offers, you may want to consider the following life insurance policy types:

  • 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.
  • 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.
    • Universal life insurance: 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.
  • 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 designed 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. The available death benefit is typically fairly low and the cost proportionately higher since it’s highly likely that final expense insurance will be paid out.

If group insurance isn’t what you’re looking for, consider one or more of these other options. If you still aren’t sure what you need, talk with a certified financial planner who can help you assess your needs.

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, many people opt to purchase an additional individual life insurance policy to further supplement the group plan offered by their employer.

For single people with no dependents, the group policy may offer sufficient coverage. However, for some 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. Calculate how much life insurance you need ahead of committing to a new or supplemental policy or work with a financial planner.

Frequently asked questions

    • 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.
    • There are many types of life insurance policies available. For example, those who are looking for significant death benefits may want to consider an individual term life insurance plan or a whole life insurance plan, which is a type of permanent life insurance. If you’re trying to cover specific expenses, like a mortgage or funeral costs, it may be beneficial to consider a mortgage life insurance policy or a final expense policy instead.
    • It depends. If you don’t currently have enough life insurance coverage and you have the option to purchase group term life insurance through your employer, it may be worth considering. To determine whether that’s the case, you may find it helpful to 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 most or all of the premium, it may be an excellent deal.
    • 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.