What Is Group Life Insurance?
Group life insurance is one method of obtaining life insurance at a lower cost or with less hassle than you could on your own.
A large entity, such as an employer or association, provides employees or members with access to life insurance policies that are all under a single umbrella contract with the organization through group life insurance.
Understanding the advantages and disadvantages of group life insurance can help you decide how to best meet your life insurance needs.
What Is Group Life Insurance?
Most people will come into contact with group life insurance through their jobs. Group life insurance is typically facilitated by large organizations such as employers, unions, or membership associations because it is a contract between a group of covered individuals and an insurer.
Employers who provide group life insurance frequently provide a certain amount of coverage at no (or very low) cost to the individual employee. This is typically included in the standard benefits package provided to employees.
- An employer may also provide voluntary or supplemental life insurance. This is also referred to as group life insurance, and it is designed to provide more coverage than a standard life insurance policy. If you want a higher death benefit amount, you can buy more coverage; the decision to buy a voluntary policy is entirely up to you.
A flat death benefit amount or one equal to a multiple of your annual salary, such as one to two times, may be offered by group life insurance policies. Your employer will usually cover the cost of the basic policy in full or in part. Even if you have to pay out of pocket, it will usually be less than what you would pay individually because the insurer bases the cost on the overall risk of the group (and your employer may cover part of the premium).
Group life insurance is also frequently guaranteed, which means you won't have to answer any medical questions or take an exam to qualify.
How Does Group Life Insurance Work?
When a large organization enters into a contract with an insurer to provide group life insurance to its employees or members, the employer holds the actual insurance policy, known as the master contract. Individuals who are insured receive a certificate of insurance rather than the policy itself. Although the policy is held by the employer or organization, each insured individual selects their own beneficiaries.
Although group life insurance can be purchased as a term or whole life policy, most employers only offer group term life insurance. This means that the insurer will only pay your beneficiaries a death benefit if you die during the specified term (usually this is as long as you are employed).
- Group term life insurance may be portable, which means that you can keep the policy even if your employment or association with the entity holding the master contract ends.
Keep in mind that even if your coverage is portable, the cost can skyrocket because you will be responsible for the entire premium.
Do I Need Group Life Insurance?
When offered as part of your employment benefits package, group life insurance is a nice perk. Whether your employer covers the entire cost of premiums or you must pay a portion of your premiums through payroll deduction, group life insurance is likely to be the most affordable life insurance you can find. It's a good idea to take advantage of this low-cost (or possibly free) benefit, especially if you're having difficulty qualifying for life insurance on your own.
Group life insurance, on the other hand, may not provide adequate life insurance coverage. Increase your coverage by purchasing additional voluntary life insurance (via your employer or organization) or by purchasing an individual life insurance policy on your own.
- In order to set your rate and qualify for coverage, most life insurance policies purchased outside of work or a member organization require a medical history and exam.
Because life insurance costs less the younger you are, it may be prudent to purchase an individual policy (or membership organization) outside of the workplace that will not terminate or increase in cost if you leave your job (or cancel your membership).