Group Life Insurance

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Group life insurance can be an excellent way to save money on your policy while still getting the coverage you need. Although it may be uncomfortable to think about, there are steps we can take to reduce the difficulties that our dying causes to our loved ones.

Life insurance is one such step. While it may not offer the same type of support as a friend while grieving, avoiding the steep costs and loss of income that can come with a death significantly reduces the stress of dealing with that loss. It can be hard to focus on emotional healing and recovery when you’re struggling to pay the bills.

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, the 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 have the option of converting your plan to an individual type. However, these conversions can be more expensive than it is to start a new term policy on your own.

Is group term life insurance worth it?

There are ups and downs to group term life insurance. It can be significantly cheaper than alternatives, as the insurer offers lower premiums, and the employer generally subsidizes this further. It is much better than having 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 be designed well for each individual 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.

Thankfully, there are numerous styles of life insurance, each with different specialties and focuses. Like with most important purchases, it can help when buying life insurance to shop around and compare not only between companies but between product types as well:

  • 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 flaws in 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 becomes an excellent deal.