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Family in life preserverGroup life insurance is cheap or may even be free if it's included as a benefit at work. But is group life insurance through work enough coverage?

When included as a paid benefit, group life insurance coverage frequently equals two years' salary. Voluntary life insurance is also a benefit that allows you to purchase the amount of coverage you want, sometimes in addition to the two years' salary.

But is employer-provided life insurance enough coverage, even if it's over two years salary? It might not be. Group life is a great benefit, but you likely need more coverage. Here's why.

Is a group life insurance policy through work enough?

Group life insurance is a great added bonus for you; however, it doesn't replace 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 breadwinner in the family. Also, you may lose your group life insurance coverage once you leave your current job, and if you develop a health condition while working there, it may be more difficult to get affordable life insurance rates on the open market.

The option to keep your life insurance after your leave or retire may be available, but it will probably cost you 10-25% 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.

Group life insurance through work is usually two times your annual salary, and you may have the option to buy more coverage, often in $10,000 increments. However, experts usually recommend that you have at least five times your salary in life insurance; some say as much as 10 times your salary. The odds are good you won't have that amount of coverage in group life.

Still, a group life insurance policy has benefits, including the fact that you can't be turned down. Spreading the risk across a group means the life insurance company is less concerned about each individual's health.

Why is group life insurance so cheap?

The cost of insuring a group of people, rather than an individual person, is cheaper because the rate is based on the group's overall risk. The insurer typically assumes that not all insured people 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 on one person.

Pros and cons of group life insurance

Group life is definitely a good thing to have, but if you don't have any other coverage, you should be sure you're aware of both the pros and cons.

Pros

  • It's cheap, and some coverage may be free if your employer pays the bill
  • You can buy coverage pre-tax and have it deducted from your policy
  • There's no medical exam, and acceptance into the plan is guaranteed

Cons

  • You may lose life insurance coverage if you change jobs
  • Limited life insurance coverage options and features to select from
  • A group life insurance policy may not offer enough coverage
  • You can't borrow from a group life policy or cash it in

Combine group and individual life for the best coverage

If you have only group life insurance, it's certainly better than nothing. And if you can't afford to buy an individual policy, accepting the coverage through work is definitely a good choice. That said, the best way to ensure adequate coverage is to combine both.

Group life can be seen as supplementary to your individual life policy, which is the coverage you can depend on to provide a large enough death benefit and stay in place no matter what happens at work. 

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. Buy enough individual life insurance to cover that amount, with the group life policy as an added safety net.

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