Group life insurance is a type of life insurance an employer may provide as an employee benefit. The employer usually pays for most (if not all) of the premiums. Companies are not required to offer their employees a life insurance plan, so if your employer does, that’s a nice benefit to take advantage of. With a group plan, the amount of coverage you have is typically one or two times your annual salary up to a certain maximum (typically $50,000).
If you have a spouse or domestic partner, children dependent on your income, or have any major financial obligations that may fall to a loved one if you die, then your group life insurance coverage alone is likely not enough.
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Jane Smith is a marketing coordinator and makes $45,000 annually. The only life insurance she has is the group plan from her employer that amounts to $50,000 in coverage.
Jane is married and has two children. She and her husband purchased a home three years ago when their second child was born. Their mortgage loan is $200,000 and the potential cost of sending two children to college will total at least $80,000. If Jane got into a deadly car collision on the way to work one morning, that $50,000 can perhaps cover her final expenses and one child’s college tuition.
Her husband John will now have to figure out how to raise two children, take care of daily living expenses, mortgage payments, and pay for college tuition on one income.
Group life insurance is a generous addition to an employee benefit package, but it’s likely not enough on its own. Many people don’t realize that you can only collect on your group life insurance policy if it’s inforce and you’re employed with the company when you die. Seems pretty straightforward, right? However, what most people forget to think about is that we usually end up spending some time in the hospital long before we pass away.
John Smith was out snowboarding and, even though he’s quite experienced, made a wrong move and wiped out. He was brought to a hospital by helicopter where it was determined that extensive brain damage occurred.
After 90 days of little to no improvement, his employer had no choice but to terminate his employment which also ended John’s life insurance coverage. John went into a coma and never came out. His family was left with no life insurance death benefit to help cover funeral expenses and resulting medical bills.
There are other situations to think about as well if you don’t pass away in the hospital and only have a group life insurance plan.
If you were to get sick with cancer or some sort of other serious condition, or if you were severely injured in an accident, chances are you would be unable to work for a long period of time. In most cases, your employer’s benefit contract usually states that they will discontinue your benefits and terminate your employment if you are still not able to make it to work after a month or so. They’ve now cut off your only means of health insurance, life insurance, and any other benefits provided by the company.
» Compare: Term life insurance quotes
Now, let’s assume you made a full recovery from your illness a few months down the road. You’re out of the hospital and back home asking for your old job back or looking for a new one.
You end up finding work at a different company, but it doesn’t offer life insurance as part of the benefits package. Now you’re left to find individual life insurance on your own. But wait a minute—now you have a pre-existing health condition. The cost to insure you, if the insurance companies even will, has the potential to be hundreds of dollars higher than before because of your medical condition (not even to mention you’re older now as well).
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What about supplemental life insurance coverage through my job?
Sometimes there is an option to purchase voluntary supplemental life insurance through your employer as well. You can typically buy up to a certain amount without needing to provide evidence of insurability or get a medical exam, for example, up to three times your salary. But if you want more coverage than this, you may need to go through underwriting.
These rates are not fixed and increase typically every five years. Oftentimes the premiums are deducted from your paycheck (with post-tax dollars) so it’s easy to manage. But if you’re a healthy individual, buying an individual life insurance policy may be more cost-effective.
If your employer cancels your group life insurance benefits, you lose the supplemental coverage but may be able to convert it to another policy. If you leave your job, this supplemental insurance coverage can continue on with you but your rates may increase and the continuation isn’t automatic. You would need to contact the insurance company directly to change this group supplemental plan to an individual life insurance policy.
It’s important to note that if you decide to opt-out of group life insurance or don’t purchase supplemental coverage and later change your mind, you need to wait until the open enrollment period to sign up. There are exceptions to this rule if you have a big life change, such as getting married or having a baby.
If you have any major health challenges, e.g. history of cancer or heart disease, it’s recommended that you buy as much supplemental life insurance as you can during open enrollment. Outside of employer-provided life insurance, it may be challenging to purchase affordable individual life insurance depending on the medical issue.
|Employer-Offered Life Insurance (Group and Voluntary)||• No medical questions or requirements for certain amounts of coverage for employees, spouses and children (can’t be declined in certain situations)
• Generally, costs less initially for tobacco users or people with health issues
• May have Accidental Death & Dismemberment (AD&D) Rider that could double amount of coverage if insured dies accidentally
• Can get small amounts of coverage
• Often payroll deductible while with employer
|• May lose coverage upon termination of employment (unless there’s a portability option)
• Generally, cost will increase as you get older
• Cost can increase upon termination of employment
• Maximum coverage amount may be less than you need
• Limits amount of coverage you can get for spouse or children
• Coverage usually ends at a certain age (typically 70 to 75)
|Individual Life Insurance||• Generally, cheaper over life of policy, especially for people in good health
• Leaving your employer doesn’t affect your coverage
• Can lock in your premium for a period of 10 years up to a lifetime
• Can convert individual term option to permanent coverage
• More death benefit amount options
|• Must go through limited or full health underwriting
• Could be declined coverage
• Minimum amount of coverage may be more than you need
• No payroll deduct available
Not all group and supplemental plans are alike. Make sure to check with your employer for specific details.
I currently only have life insurance through work. What should I do?
Sometimes you have the option of converting your group life insurance coverage to an individual life insurance policy if you leave your employer, even without having to prove insurability. However, most people choose not to do this because these conversion premiums tend to be much higher than premiums for comparable policies available to individuals. Typically, only those who are otherwise uninsurable (because of a health condition, for example) take advantage of this conversion option.
We recommend purchasing an individual term life insurance policy as your base policy and use your group policy to supplement it. Term life insurance coverage is not tied to your employer. As long as you keep paying the premiums, a term policy will follow you wherever you go. It’s also very affordable.
Can I get term life insurance quotes online?
Yes, getting term life insurance quotes online is easy here at Quotacy. If you aren’t sure how much life insurance you need, use our life insurance needs calculator. After answering a few questions, you’ll get an idea of how much coverage you should own. Then you can get term life insurance quotes online, right here. If you already know how much coverage you want to apply for, get a term life insurance quote right now.
Individual term life insurance is inexpensive to buy and you can get several term life insurance quotes from top-rated insurance companies online in less than a few minutes, so why not do it? Buying life insurance is easy and hassle-free through Quotacy. Learn more about term life insurance and get your quote today. We’re happy to help.
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About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.