Group life insurance
Life insurance can be an excellent way to ensure that your loved ones are financially secure after your death. While there are numerous policy options available, group life insurance may be a cost-effective way to obtain coverage. Individual life insurance policies are typically sold directly to individuals by insurance companies, whereas group life insurance policies are typically sold to employees as part of their benefits package.
While the death benefit for group life insurance is typically small, employees of companies that provide the coverage will frequently only make a small contribution to the policy from their salary. As a result, it can be a cost-effective option to pursue when looking for life insurance coverage. Here's what you should know about group term life insurance, how it works, and whether it's worthwhile.
What is group term life insurance?
Group life insurance is a type of life insurance that is provided by employers and other large-scale entities, such as associations or labor organizations. This type of life insurance is typically included in a benefit package alongside health, dental, and/or vision insurance. Group life insurance costs are typically subsidized by the employer and offset by group participation, and in many cases, this coverage is provided for free or at a low cost.
In general, group life insurance policies provide less coverage than individual life insurance policies. These policies do not necessitate a medical examination or subject the policyholder to individual underwriting. This can make it easier to obtain coverage, especially if you have a medical condition that makes qualifying for individual life insurance coverage difficult.
How does group life insurance work?
Group life insurance policies are a type of term life insurance, which means they only last for a certain number of years before needing to be renewed. The price of renewal can vary depending on a number of factors, including the average health and age of the company's employees, changes in state laws, and changes in internal insurance company policies.
When you sign up for a group life insurance policy through your employer, you will be given a copy of your coverage details, and if your employer does not cover the cost, you will most likely be required to pay a monthly premium. These premiums are typically lower than what you would pay if you purchased an equivalent policy directly from the insurance company. If you die, your life insurance will pay out to your designated beneficiaries.
If you leave a company where you have a group life insurance policy, you may be able to convert your policy to an individual policy before or shortly after leaving. However, this may not be an option for everyone, and speaking with an agent about your options can be beneficial.
Who is eligible for group life insurance?
Employees or members who choose group life insurance through their company or organization are eligible. Some organizations will only allow you to participate in group life insurance after a period of probation. Remember that if you leave the company or organization, your coverage will usually end immediately or within a few weeks.
Is group term life insurance worth it?
It all depends. Because the insurer offers lower premiums and the employer generally subsidizes this, group life insurance can be significantly less expensive than alternatives. You'll probably feel more at ease with group term life insurance than with no life insurance at all, especially if your employer covers the entire cost.
Group life insurance, on the other hand, has inherent limitations. When a policy is well-designed for a diverse group of people, it rarely meets all of the individual needs of that group. This can result in you paying for coverage you don't want while not receiving coverage you do. You also lose the ability to tailor your premium payments and death benefit payout to your specific needs and circumstances. Furthermore, the death benefit is usually quite low.
Your employer may be able to provide you with supplemental life insurance. However, if you determine that you require more coverage or coverage tailored to your specific needs, you may want to consider the following life insurance policies:
- Term life insurance: Although term life insurance is time-limited, it can offer some of the best premium-to-benefit ratios. Term life insurance policies are written for a set number of years before being renewed, at which point the rates may increase.
- 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 policies are designed to cover the insured person's entire life span, making them a type of 'permanent' life insurance. When it comes to premium costs and death benefits, Universal provides flexibility and customization.
- 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, the remainder of the mortgage loan will be paid off, usually tax-free.
- Final expense life insurance: This type of insurance is designed to cover some of the expenses associated with death. In general, this is done to ensure that funeral expenses are covered without putting financial strain on surviving family members.
If group insurance isn't for you, consider one or more of the following alternatives.
Why you may need additional coverage
The coverage provided by group term life insurance policies is typically limited. You may be able to purchase expanded coverage through your employer's and their insurance company's existing policy. However, in many cases, purchasing an additional individual life insurance policy to supplement your employer's group plan may be necessary.
The group policy may be sufficient for single people with no dependents. However, for families and those with dependents, the benefits of these term policies are frequently insufficient. In these cases, it may be prudent to purchase a larger individual plan to ensure that your beneficiaries receive a sufficient payout to meet their needs.