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Is group life insurance worth it?

Getting insured through your workplace can be a lot cheaper — but not necessarily better.

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Group life insurance is often offered by employers as part of a benefits package, and over half of Americans who have life insurance own a group policy, according to LIMRA. While it’s much cheaper and easier to qualify for than an individual policy, it’s often limited to small amounts — which means it may not provide enough coverage for your needs.

If your workplace offers this perk, it’s worth making the most of it — but in many cases it’s best to treat it as a supplemental life insurance policy.

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What is group life insurance?

Group life insurance is a single life insurance contract that covers a group of people. It’s often used by employers to cover employees and is offered as part of a benefits package. While the employer is the policyholder, the employees are the insured individuals and can each name their own beneficiaries.

Some of the key features of group policies include:

  • Cheaper premiums. Group insurance policies are usually offered at competitive rates thanks to a bulk discount.
  • Subsidized by your employer. Depending on your policy, your coverage may be paid in full by your employer or you may both contribute to it. Otherwise, the payments will be deducted from your paycheck.
  • Open to everyone. Most group policies will automatically accept applicants regardless of medical history.
  • Basic coverage. Group policies often offer a low amount of basic coverage. In some cases, you may have the option to purchase additional coverage, though you’ll likely be the one to pay for it — not your employer.

What types of coverage are available?

Some employers will bundle multiple types of coverage into a group policy, which can include:

  • Life insurance. A traditional life insurance policy pays out a lump sum if the insured dies or is diagnosed with a terminal illness. This is the most common benefit type.
  • Disability insurance. Also known as disability insurance, this pays out a percentage of your income if you become unable to work.
  • Critical illness insurance. This pays out a lump sum if you’re diagnosed with a serious medical condition such as cancer or stroke.

How is a group policy different than an individual policy?

Group life insuranceIndividual life insurance
Level of coverageAutomatically set by the group policyDecided by you
Is medical underwriting required?NoYes
How are premiums paid?Contributed by your employer and/or deducted from your paycheckPaid by you directly
What happens when you leave your job?Lose your coverage or convert to an individual policy and pay new premiumsYour policy is not affected

Pros and cons of group life insurance

Pros

  • Cheap and convenient. Employers offer group life insurance as part of their benefits package, so you typically won’t pay anything for coverage. (If you want to buy more coverage, you might be able to purchase a supplemental life insurance policy).
  • Automatic acceptance. Group life insurance policies don’t require a medical exam, which is ideal for those with serious medical conditions.

Cons

  • Rarely portable. Since this insurance is tied to your workplace, you typically can’t take the coverage with you if you switch jobs.
  • Expensive to convert. Some employers will let you convert your group policy to an individual policy if you leave – but your rates may rise significantly.
  • Basic and limited coverage. Group life policies are generally capped at low amounts. According to the Bureau of Labor Statistics, the median maximum face value of group policies is $250,000 — which may leave you underinsured.
  • Not as customizable. You can’t choose your level of coverage, and you may not have access to the same range of policy features of riders you could get elsewhere.

Compare individual life insurance companies

Name Product Issue Ages Minimum Coverage Maximum Coverage Medical Exam Required
LadderLife™ Life Insurance
20 - 60 years old
$100,000
$8,000,000
No
Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.
Policygenius
18 - 85 years old
$10,000
$10,000,000+
Depends on provider and policy
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
Fabric
25 - 60 years old
$100,000
$5,000,000
No
Get affordable term life insurance with accelerated underwriting or no-exam coverage up to $1,000,000. Available in all states except CA, NY and MT.
Sproutt
18 - 100 years old
$50,000
$3,000,000
No
This life insurance broker combines technology and the human touch to match you with a policy tailored to your needs.
Lifefy
18 - 60 (or 55 for smokers)
$50,000
$350,000
No
Offers quick, affordable Term and Guaranteed issue life insurance. Coverage up to $350,000. Only available in 38 states.
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Compare up to 4 providers

Will my beneficiaries’ payout be taxed?

Generally, no. The proceeds from your group life insurance policy aren’t considered as taxable income, according to the IRS.

How to get employee life insurance

If your employer offers group life insurance, you should be able to enroll in the plan when you’re hired. Your HR team will walk you through the coverage and answer any questions you may have.

If you want to adjust or increase your coverage, you’ll need to wait until your employer’s annual open enrollment period. Similarly, if you initially decline the offer but decide you do want life insurance later, you’ll also need to hold off until open enrollment. However, if you’ve experienced a qualifying life event — like having a child or getting married — you’ll be eligible to enroll in group life insurance, even if open enrollment has passed.

Should I get life insurance through work?

If your employer offers free group life insurance, it’s worth taking advantage of that. Likewise, if you have a serious medical condition or only need a small amount of life insurance, it could be a good fit.

As for supplemental life insurance, weigh up the coverage and cost of the policy available through your work with individual policies from a range of providers. If you come across a provider that offers the coverage amount and riders you’re looking for, consider taking out an individual policy. That way, your coverage will be portable – no matter where your career takes you.

Bottom line

Group life insurance can offer free or low-cost coverage to employees, but it may not be sufficient — especially if you have outstanding debt, or a family or assets to protect.

To bridge any gaps in your coverage, compare life insurance companies to see if an individual policy may be better suited to your needs.

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