What Is Group Life Insurance?

Group life insurance is a type of life insurance where a single contract covers an entire group of people. This type of life insurance is usually negotiated by an employer with an insurance company and offered to employees as a part of their benefits package. 

In this article, we’ll discuss the pros and cons of group life insurance and how it compares to and can work with other policies, such as individually-owned participating whole life insurance, to help you get the best coverage.

How Does Group Life Insurance Work?

If you’re employed, there’s a high likelihood that group life insurance is offered by your employer at little to no cost to you. Professional associations may also sponsor group life insurance as a benefit for their members. When you start a new job, or join a new association, there may be a waiting/participation period before you’re able to sign up for benefits, including group life insurance. This is a normal requirement. When you sign-up, there will be a few required forms like accepting the terms and naming your life insurance beneficiaries. It’s usually a pretty standard process that doesn’t require a lot of time, and also does not require a medical exam. 

Groups are essentially able to get a better rate because they are “buying in bulk”, for a group of people in contrast to an individual rate one person might pay. However, coverage amounts are usually much lower than an individual policy, often capped at $50,000 or one to two times your annual salary amount. While this can provide some coverage for very little or no cost to you, it probably won’t be enough coverage to protect your income for your family should something happen to you, which is what life insurance is really all about. 

Additionally, most group life insurance coverage is based on term life insurance. As with all term life insurance, this means that your beneficiaries will only receive your death benefit if something happens during your coverage period, and you won’t be accumulating any cash value. When you leave the group, you may have an option to convert your group coverage to individual coverage but it will usually be more expensive, especially if you have health issues at that time. 

Benefits of Group Life Insurance

While group life insurance might not cover all the bases when it comes to providing for your loved ones and building a financial legacy, there are some advantages to getting this coverage through an employer.

1. Convenience

As mentioned earlier, getting group life insurance is often as easy as filling out a few forms as a part of your hiring process or during an open enrollment period. 

2. Affordability

The basic coverage is often free for an employee in an employer-sponsored plan. This employee benefit is an easy way for an individual to get at least some life insurance coverage for little or no cost.

3. Automatic Acceptance

Typical group life insurance plans offer guaranteed coverage as long as you’re a part of the group. This means employees with or without serious medical conditions can take advantage of the coverage.

These three benefits are why so many people take advantage of group life insurance. It usually makes a lot of sense to accept group life insurance coverage, but don’t stop there.

Limitations of Group Life Insurance

Depending on your financial and long-term goals, group life insurance will probably fall short of the total life insurance coverage you need. Here are some common disadvantages of group coverage. 

1. Coverage Is Tied To Your Job

One of the major downsides to group life insurance is the fact that it’s tied to your employer. This means that if you were to change jobs, your life insurance coverage most likely wouldn’t follow you. In some cases, you may be able to convert your policy to individual coverage when you change jobs, but the cost of premiums might go up significantly. 

2. Coverage Amounts Are Low

As we touched on earlier, group coverage amounts are typically lower than an individually-owned life insurance policy. Most group policies are capped at $50,000 per employee or one or two times your annual salary. This means that your beneficiaries may only receive enough money to replace your income for a couple of years. 

3. You Could Be Paying More

Because group life insurance is a “one size fits all” life insurance plan, you might be paying more than necessary for your group coverage, especially if you’re young and healthy. Insurance companies charge a median rate because they know some people in any given group will be at higher risk and some people will pose a lower risk. This is still usually cheaper for the employer as a whole, but if the employer isn’t paying 100% of the premiums, your share might be more than you would pay for individual life insurance coverage. 

4. Limited Options

Group coverage options are negotiated by the employer. Because of this, you aren’t able to explore the variety of policy options and rates that you would be able to outside of work-provided coverage. This means that your group coverage isn’t tailored to you and your specific needs and goals.

How to Decide What Insurance Is Right for You

It’s often a good idea to go ahead and take advantage of group life insurance coverage, especially if it’s free through your employer. However, this isn’t where your life insurance coverage should stop. Most people need more than just group coverage.

At Life Benefits, we specialize in designing individually-owned life insurance policies to fit your specific needs. We help people with term life insurance and participating whole life insurance policies.

Individually-owned term life insurance can provide larger amounts of temporary life insurance for a relatively low premium. Whole life insurance can take advantage of guaranteed cash value growth and potentially dividends (unlike term insurance). Cash value growth within a whole life insurance policy is tax-deferred and can offset the cost of insurance over time. Whole life insurance can be a great tool for building wealth and a long-term financial legacy. All individually-owned life insurance can follow you regardless of employment changes.

If you’re interested in getting more than just group life insurance to build and protect your finances, schedule a strategy session with us today.

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