With group life insurance, a large entity such as an employer or association offers employees or members access to life insurance policies that are all under a single umbrella contract with the organization. Understanding the benefits and drawbacks of group life insurance can help you decide on how best to take care of your life insurance needs.
What Is Group Life Insurance?
Most people will encounter group life insurance through work. Since group life insurance is a contract between a group of covered individuals and an insurer, this kind of coverage is usually facilitated by large organizations such as employers, unions, or membership associations. Employers who offer group life insurance will often provide a certain amount of coverage at no cost (or very low cost) to the individual employee. This is usually part of the standard benefits package offered to employees. Group life insurance policies may offer a flat death benefit amount or one equal to a multiple of your annual salary, such as one to two times. The cost for the basic policy is usually covered in full or in part by your employer. But even if you have to pay out of pocket, it will generally be less than what you would pay individually, since the insurer is basing cost on the risk of the entire group (and your employer may cover part of the premium). Group life insurance is also often guaranteed, meaning you don’t have to answer medical questions or take an exam to qualify.
How Does Group Life Insurance Work?
When a large organization contracts with an insurer to offer group life insurance to its employees or members, the employer holds the actual insurance policy, which is called the master contract. Covered individuals receive a certificate of insurance, rather than the policy itself. Although the employer or organization holds the policy, each insured individual chooses their own beneficiaries. Although group life insurance may be offered as either a term or whole life policy, the majority of employers offer group term life insurance. This means the insurer will only pay a death benefit to your beneficiaries if you die during the term specified (usually this is as long as you are employed). Keep in mind that even if your coverage is portable, its cost can increase substantially because you’ll be responsible for 100% of the premium.
Do I Need Group Life Insurance?
Group life insurance is a nice perk when it is offered as part of your employment benefits package. Whether your employer covers the entire cost of premiums or you need to pay a portion of your premiums via payroll deduction, it is likely that group life insurance will be the least-expensive life insurance you can find. It’s smart to take advantage of this low-cost (or possibly free) benefit, particularly if you might have trouble qualifying for life insurance on your own. However, group life insurance may not provide sufficient life insurance coverage. One option is to increase coverage either with additional voluntary life insurance (through your employer or organization), or by purchasing an individual life insurance policy on your own. Since life insurance costs less the younger you are, it can be prudent to purchase an individual policy outside the workplace (or membership organization) that won’t terminate or increase in cost if you leave your job (or cancel your membership).
