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Is group life insurance enough for you?

By Posted : April 13, 2018

Family in life preserverThough group life insurance is a great deal, is it really all the insurance coverage that you need?

Let Insurance.com help you find affordable life insurance now.

In most cases your employer owns the group life insurance policy, and you will either receive it as an employee benefit or you can purchase it through your company's benefits plan voluntarily. If it is a benefit, it typically equates to one or two year's salary that is paid out to your beneficiaries at the time of death. Smaller companies may offer a set, face amount payout, depending on your position at the company. Larger companies usually offer better death benefits, like up to three times your salary, in the event of your death. Smaller businesses are more apt to offer smaller plans due to limited funds.

Group life insurance that is offered on a voluntary basis is typically more extensive than if it's given as a benefit. Depending on what kind of policy you have, your spouse and children may be covered as well. The size of your death benefit can vary, and at some places, there is a maximum amount of $1 million that can be collected by the beneficiary at the time of death. Some employers even go as far as to offer a whole life insurance policy, giving employees permanent life insurance coverage, even after they leave or retire. 

Why group life insurance is so "cheap"

The cost of insuring a group of people, rather than an individual person, is cheaper because the rate is based on the overall risk of the group. The insurer typically assumes that not all people who are insured will remain with the company until they retire, which in turn means a shorter life insurance term. Also, the likelihood of the entire group dying is far less likely than if you base it off of one person.

No medical exams required

Unless a severe health problem is listed in the questionnaire when applying for group life insurance, no medical exam will be required. In laymen's terms, you will qualify for life insurance, regardless of any outstanding medical conditions, making it a guaranteed issue.

Pros and cons of group life insurance through work

Group life insurance is a great added bonus for you; however, it should not be used instead of individual life insurance. With group life insurance, the coverage offered is not always enough to take care of your beneficiaries, especially if you are the main bread winner in the family. Also, you may lose your group life insurance coverage once you leave your current job, and if you developed a health condition while working there, it may be more difficult to get affordable life insurance rates at the next place you go to.

However, the option to keep your life insurance after your leave or retire may be available, but it will probably cost you ten to 25 percent more in insurance premiums. In the event your employer switches life insurance plans or cancels the one you have, you will no longer be covered.

It's also possible you may not even have the option of getting a group life plan through your job, as fewer employers are offering group life insurance plans as part of  benefits packages.

Last year 48 percent of employers offered life insurance to their workers, down from 62 percent in 2006, according to LIMRA's Hidden Currents: Under-the-Surface Changes in the Employee Benefits Market survey.

With fewer employers offering life insurance benefits, you'd think that more people would buy individual life insurance, right? Well, LIMRA found that for the first time in its surveys employer-sponsored life insurance coverage exceeds individual life insurance coverage (108 million compared to 102 million).

So, that means fewer businesses are offering life insurance and fewer individuals are getting individual life insurance coverage. This could leave families prone to financial ruin. It could mean losing your house, racking up huge credit card bills and defaulting on loans.

Despite fewer employers offering coverage, life insurance is as important than ever. The survey found that Americans without life insurance don't have savings to help them if the unthinkable happens.

Three-quarters said they would have immediate or near-immediate problems paying for basic living expenses if the primary wage earner died.

The downsides of group life insurance coverage

  • You may lose life insurance coverage if you change jobs
  • Limited life insurance coverage options and features to select from
  • Group policies are more standard than individual life insurance plans

You can't borrow from a group life policy or cash it in

Another limitation of group life insurance is that you can't borrow from it or cash it out. Only permanent policies, such as whole life or universal life, feature a cash value component, which is an accompanying savings account that accumulates on a tax-deferred basis. You can borrow from the cash value and use the money for any purpose, whether it's to pay college tuition or supplement your retirement. You can also surrender the policy for the surrender value. Typically the life insurance offered as an employee benefit is term life, which has no cash value.

Buying an individual life insurance policy ensures a financial safety net for your loved ones

For the first time in its surveys, LIMRA found that employer-sponsored life insurance coverage exceeds individual life insurance coverage (108 million compared to 102 million) even though life insurance benefits through work are on the decline.

That means fewer businesses are offering life insurance and fewer individuals are getting individual life insurance coverage. This could leave families prone to financial ruin. It could mean losing your house, racking up huge credit card bills and defaulting on loans.

Despite fewer employers offering coverage, life insurance is as important than ever. The survey found that Americans without life insurance don't have savings to help them if the unthinkable happens.

Three-quarters said they would have immediate or near-immediate problems paying for basic living expenses if the primary wage earner died.

If anyone depends on you financially, then you need life insurance. To determine how much life insurance you need and what type of life insurance to buy, calculate how much money your dependents would need if you died tomorrow and for how long. Think of your group life insurance as a nice supplement to individual life insurance.

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