What is group life insurance?
Many employers offer life insurance as a workplace benefit and subsidize some or all of the benefits. These employer-provided life insurance policies are sometimes referred to as "basic group life insurance."
Coverage amounts are usually limited to small amounts, such as one or two times your annual salary. Let's say your salary is $50,000 per year - your employer may provide a group policy with a face amount of life insurance of $50,000 or $100,000. This coverage is usually guaranteed issue, meaning you don't have to undergo a medical exam or answer health questions to qualify for life insurance.
Since employers usually cover the premiums and you won't be denied coverage, there's no reason not to sign up for group life insurance.
Complete all required forms within the specified time frame and be sure to indicate the beneficiary of the life insurance policy. Otherwise, the policy payout will automatically pass to your estate, spouse, or other relatives as provided by law. It may also be subject to probate.
Additional group life insurance
Many people choose to purchase additional insurance, known as supplemental life insurance, as part of their workplace plans.
The amount of coverage varies from company to company, but is usually around $500,000. Higher death benefit amounts for life insurance mean that you may have to complete a health questionnaire to qualify for coverage. The results of the questionnaire are used to calculate rates and eligibility for coverage.
Pros and cons of buying life insurance through work
Here are the top benefits of group life insurance through an employer.
Convenience. Getting insurance at work can be quite easy. Paperwork is often part of your employment paperwork, and human resources departments are usually available to answer your questions.
Price. Basic insurance at work is usually free or offered at a low cost to the employee, making it an easy way to get a small amount of coverage.
Acceptance Most basic life insurance plans at work are guaranteed issue, so even people with serious health conditions can qualify. However, you may need to provide information about your health if you want to buy additional life insurance.
While group life insurance is a "perk" at work, it may not be enough to meet your needs. Here are the cons:
Insurance coverage is tied to your job. Group life insurance is often not portable. This means that if you leave your job, you will not be able to take the policy with you. You may be able to convert your group policy to individual life insurance, but the price may increase significantly. If your next job doesn't offer group life insurance, you can buy an individual policy on the open market.
Limited choice. Insurance at work is typically a type of term life insurance, and employers typically only work with one carrier. Therefore, you won't find the same variety of policy options as outside of work. If you're looking for a more complex product, such as whole life or universal life insurance, you're better off first comparing prices on the open market and talking to a fee-only life insurance advisor before proceeding.
Low coverage amounts. If you have dependents or many financial obligations, a group life insurance policy can leave you underinsured. Use our calculator to determine how much life insurance you need. If the amount of group coverage is less than that amount, you may want to purchase an individual policy to ensure you and your family have enough coverage.
The premiums are not fixed. Group life insurance premiums increase either annually or every five years.
Did you know...
If your employer pays for the coverage, premiums for coverage over $50,000 may be subject to income tax. Insurance coverage for the first $50,000 is not taxable.
How to decide if group life insurance is right for you
The first thing to do is to take advantage of free basic group term life insurance.
Then compare the cost of supplemental life insurance offered at your job to what you can find on your own.
If you can get a comparable quote on your own, it may be worth it to purchase an individual policy in addition to the group life insurance you get at work.