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Group life insurance: What you need to know

By Posted : March 14, 2019

Most Americans get their life insurance through employers. In fact, group life insurance covers 108 million people. That’s compared to 102 million people who have individual coverage.

Group life insurance, often offered by employers, protests you at a low cost. However, those policies can give limited cash benefits.

Whether a group life policy can sustain your family for years or is merely supplemental to an individual policy depends on what kind of policy you have.

It’s important to know exactly what your employer’s life insurance plan entails. Knowing what to look for can help you make a more informed decision about the level and type of coverage that's right for you.

Let’s take a look at group life insurance, what it offers and potential issues with that coverage.

 

What is group life insurance?

Group life insurance covers employees typically as part of an overall benefits package.

The insurance company charges the employer a discounted group rate for this insurance. That allows a company to offer workers this coverage for free or far less than they'd pay individually.

Group life insurance often is term life insurance. An employee is only eligible for this coverage as long as he or she continues to work for the company.

This coverage can help your loved ones in case the unthinkable happens. That said, group life insurance often doesn’t provide enough coverage, so you likely still need an individual life insurance policy.

 

Pros and cons of group life insurance

One of the main benefits of group life insurance is that it's easier to get coverage.

Group life insurance premiums are based on the group’s overall risk profile -- in this case, a group of employees -- that will be insured. So, you won't have to answer medical questions as you would if you tried to apply for an individual policy.

If you're considered high risk because of your health, age or medical history, you'd likely face higher monthly premiums or find it more difficult to get an individual policy. With group life insurance, you can more easily qualify for coverage.

Another benefit, which we've already mentioned, is that this coverage is cost-effective. In many cases, your employer may offer it for free.

The downsides are that you get what you pay for. You may not get as much coverage as you would with an individual plan. With group life insurance, the death benefit can range from one to two times your annual salary. Experts often say adequate coverage often requires at least 10 times your pay.

Another issue is that your coverage likely will end when your relationship with your employer does. If you leave, you're no longer covered under the policy. Also, if your next employer doesn't offer this group life, you may have to get individual coverage or forgo life insurance if the monthly premiums are too costly.

However, if you purchase additional voluntary coverage at the group rate while you still work for your current employer, your policy may be portable. Talk to your benefits administrator to learn more about all your options.

Let’s review the pros and cons of group life insurance:

Pros

  • Offers protection at little to no cost
  • No medical questions or medical exam
  • It’s better than not having any coverage 

Cons

  • Limited payout
  • Linked to your employer, so you lose coverage if you change jobs
  • You likely still need an individual policy

     

    Alternatives to group life insurance

    A group life insurance policy is a nice perk. However, if your employer doesn’t offer group life, there are other ways to get coverage.

    An individual policy is an alternative whether or not your employer provides group life. If you're relatively healthy and young, you can probably get an individual policy that offers more coverage for an affordable rate.

    Permanent life insurance, such as a whole life or universal life policy, will be more expensive but it'll cover you in perpetuity as long as you make your payments.

    Term life insurance may have a 10, 15 or 20-year term and only offer benefits if you die during the policy's term.

    Whether you choose whole life or term life insurance, find the best individual policy you can afford that offers the highest cash benefit for your family.

    Another possibility is accidental death and dismemberment insurance. AD&D coverage awards a cash benefit in the event of your accidental death or if you experience a severe, debilitating injury. Some employers offer this voluntary coverage as part of their employee benefits package. You should consider it supplemental coverage -- along with an individual life insurance policy -- that can provide financial support for your family after your death.

     

    How to find a group life insurance policy

    Check with your employer to see if it offers a group life insurance policy.

    You might also be able to find coverage through a membership organization. For example, if you're self-employed, you might be able to get life insurance through the Freelancers Union. AARP also offers group life insurance, so if you're a retiree or age 50 and older, this might be a worthwhile option to get more affordable coverage.

    If you're a small business owner with employees, you can work with a licensed independent insurance agent or broker who can do all the comparison shopping on your behalf. The agent will help you find the most affordable group rate that offers the best coverage for you and your employees.

    The bottom line is that if you can't afford life insurance on your own, getting a policy through your employer might be the next best alternative. However, if cost isn't an issue, don't rely on group life insurance coverage alone to provide financial protection for your family should something ever happen to you. An individual policy likely will come with a higher payout, so research all your options to get life insurance that will meet your family's financial needs.

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