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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.

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 happens to my group life insurance policy if I leave my job?

If you’re changing jobs and your policy includes a portability rider, you’ll have the option to take your current coverage with you to your next employer. However, if you port your coverage and your original employer changes or cancels its group coverage, your coverage will end. If you have a conversion rider listed on your policy, you’ll be able to convert it into an individual policy once you leave your job, but your premiums will likely increase.

Some policies may automatically be canceled when you leave your job. Talk with the benefits coordinator at your job to find out your policy details.

Does group life insurance end when you retire?

Generally, yes. But in some cases, you may be able to convert your coverage into individual life insurance.

What types of group 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 insurance Individual life insurance
Level of coverage
  • Automatically set by the group policy
  • Decided by you
Medical underwriting required
  • No
  • Yes, for most policies
Premium payment
  • Subsidized by your employer and/or deducted from your paycheck
  • Paid by you directly
When you leave your job
  • Lose your coverage, or convert to an individual policy with revised premiums
  • Nothing — your coverage won’t be 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 too.
  • 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 age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
Prudential
18 - 75 years old
$100,000
$10,000,000
10, 15, 20, 30 years
Yes
Customize your term life insurance with a long list of life and disability riders. Get a free quote on Policygenius.
Transamerica
18 - 75 years old
$25,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase a policy worth anywhere from $25,000 to $10 million, with the option to skip the medical exam. Get a free quote on Policygenius.
MassMutual
18 - 80 years old
$2,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase term life insurance up to age 80 with Finder's #1 ranked company. Get a free quote from this A+ rated insurer on Policygenius.
AIG
AIG
20 - 85 years old
$5,000
$2,000,000
10, 15, 20, 25, 30, 35 years
Yes
Buy term life insurance all the way up to age 85, and choose a policy that lasts up to an incredible 35 years. Get a free quote on Policygenius.
John Hancock
18 - 65 years old
$25,000
$1,000,000
10, 15, 20 years
Depends on policy
Score a low rate on term life insurance with discounts and rewards for your healthy habits. Get a free quote on Policygenius.
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Compare up to 4 providers

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 sign up or adjust your coverage, you’ll need to wait until your employer’s annual open enrollment period. 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.

Can I get life insurance through my work if I have a pre-existing condition

Group policies generally don’t require medical underwriting, meaning you can get coverage if you have a preexisting condition. But some policies exclude preexisting conditions, which means that it won’t pay out due to death or illness resulting from that condition.

Talk with your employer and/or insurer to find out more about how your group policy covers preexisting conditions.

Should I get life insurance through work?

Yes, 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 companies. If you come across a companythat offers the coverage amount and riders you’re looking for, consider taking out an individual policy instead. That way, your coverage will be portable – no matter where your career takes you.

Will my beneficiaries’ payout be taxed?

Generally, no. Your group life insurance policy payouts aren’t considered taxable income, according to the IRS.

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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