Life insurance policies, as most people understand them, are fairly straightforward. You compare life insurance policies from different providers and then sign up for the one you like. If you die while you have your policy, there’s typically a death benefit paid out to your beneficiaries. If you want a bigger death benefit for your loved ones, you likely have to pay higher premiums for the additional coverage.
Group life insurance is different because it’s often available only through your employer and your options for coverage may be limited.
Here we’ll cover how group life insurance works, its costs, and the pros and cons. This will help you understand whether a group life insurance policy would align with your financial situation and goals.
What is group life insurance?
Life insurance is often separated into two groups: term vs. whole life insurance. Whole life is sometimes also referred to as permanent insurance.
- Term life insurance is the type of insurance most people recognize and understand when learning how life insurance works. The coverage is set for a term, often between one and 30 years. If you die during that period of time, the policy will pay out a death benefit to your beneficiaries. If you die outside the term, there is no death benefit.
- Permanent life insurance covers your entire life instead of a specific amount of time. If you get permanent life insurance when you’re 20 and have it until you’re 100, you’re still covered. The policy won’t end until you die, cancel the policy, or default on your payments.
Group life insurance is often provided by an employer or another group and tends to be offered as a term life insurance policy, though it’s possible to see group policies in the form of permanent policies such as whole or universal life insurance. Term life insurance doesn’t last your entire life and its death benefit may be reduced as you get older. But whole life insurance typically costs more.
How group life insurance works
Most group life insurance policies are offered through an employer. According to a Bureau of Labor Statistics study about employee benefits in the U.S., 60% of all civilian workers had access to employer-offered life insurance and 98% of them participated in the offered plans.
The typical coverage amount, or the death benefit payout, for group life insurance can vary by employer and life insurance plan. Your employer is the one that chooses the policy and becomes the policy owner, so it’s up to them to decide on the coverage terms and limits in conjunction with what’s available from the insurer. But you’re able to choose whom you want to assign as your beneficiaries on the policy.
Common amounts of coverage for a group life insurance policy are between $25,000 and one to two times your annual salary. This is less than the amount of life insurance that is typically recommended as enough financial protection, which is around five to 15 times your annual salary.
Your employer may also include accidental death and dismemberment (AD&D) coverage as part of a group life insurance policy. This coverage typically pays out the full death benefit if you die and potential partial benefits for other losses, such as losing a limb or your sight in one eye. You may receive the full benefit if an accident causes multiple losses of limbs or other applicable factors.
Keep in mind, your enrollment in group life insurance coverage will typically end if you leave the employer providing the coverage. However, you may have the option to convert your group life coverage to an individual policy or continue a group universal life insurance policy. Your new employer may or may not offer group life insurance, which is something to keep in mind if you’re planning to switch jobs.
How much does group life insurance cost?
The Bureau of Labor Statistics study on employee benefits in the U.S. found that 95% of workers with employee-offered life insurance weren’t required to make contributions to their plan. In other words, the group life insurance costs were nearly completely covered by most employers.
This is often the case for group life insurance policies offered by employers. You may not have to make any premium payments to participate in the plan or might be much more affordable than individual plans you pay for yourself because your employer is covering some of the costs.
However, group life insurance policies are typically restricted in the options they offer. Even if you want to pay for more coverage, you may not be able to. Check with your employer to see what kinds of options are available with your group life insurance plan. You could have the option to buy supplemental life insurance through an employer if you want additional coverage.
How to sign up for group life insurance
Group life insurance, when offered, is typically provided as an automatic employee benefit, similar to health insurance or dental insurance. However, eligibility may vary by employer. For example, if a company requires a new employee to pass a probationary period before being allowed full access to benefits, you may have to wait to take advantage of your group life insurance policy.
Fortunately, most group life insurance policies don’t require a medical exam. Because they’re often part of your benefits package, all you have to do is fill out your typical paperwork as a new employee and opt into the group life insurance plan.
Certain group life insurance policies are renewed on an annual basis. This may give you the opportunity to change your coverage options if you decide you want more or less coverage, or if you want to opt in or out of the life insurance plan.
Pros and cons of group life insurance
Here’s a quick overview of the pros and cons of group life insurance:
- Free or very affordable: You might get free group life insurance coverage through your employer or another group. If it’s not free, it’s likely subsidized.
- You get life insurance coverage: If you haven’t thought about getting life insurance before, this is typically a quick and easy introduction to how life insurance works and to getting simple coverage.
- No strict requirements: Group life insurance doesn’t typically require the policyholder to go through a medical exam like many individual life insurance policies.
- Easy to sign up: This could vary by employer, but you don’t often have to do much to opt into a group life insurance plan. It could be as little as filling out some benefits documents.
- Limited policy options: Your employer or group chooses the group life insurance policy and what insurance benefits are available to employees. This limits what you’re able to select when compared to shopping for individual policies on your own.
- Low coverage amount: Group life insurance coverage is often much lower coverage than what you can find on individual life insurance policies. If you want additional coverage, you likely have to buy a supplemental policy through your employer or get your own individual policy in addition to your group policy.
- Coverage tied to employment: If you leave your job where the group life insurance is offered, you’ll likely lose your group life insurance coverage.
How to know if group life insurance is for you
There are virtually no downsides to getting group life insurance if it’s offered for free from your employer. Even if you already have an individual life insurance policy, opting into a free group life insurance plan just means more life insurance coverage.
But group life insurance might not be enough coverage alone. And if your group life insurance options aren’t free, it’s worth it to do some comparison shopping to see what’s available for you. You can easily get started by checking out our top picks for the best life insurance companies.
Keep in mind that five, 10, or 15 times your income are good rules of thumb for how much life insurance coverage you might want. But figuring out how much life insurance you need may take more time to estimate.
This could involve taking into account all your potential future expenses that would need to be paid if you were to die, including your mortgage, car payments, college expenses for your kids, everyday expenses like groceries and utilities, other financial commitments you have to family members, and much more.
Can I have two life insurance policies?
Yes, you can have two or more life insurance policies, as there’s no actual limit on how many life insurance policies you can have. But keep in mind that insurers will likely ask if you already have coverage when you’re going through the underwriting process. If you already have a lot of coverage, they may ask why you want more or why they should give you more. You may also have to complete a medical exam for each life insurance policy you take out.
Can I cash out my group life insurance policy?
You can’t cash out a term group life insurance policy, as it has no cash value. But if you have a universal group life insurance policy, you could have a cash value option available for withdrawal. This depends on your group life insurance policy, so be sure to check with your employer and read over the terms of your policy.
Does group life insurance end at retirement?
Group life insurance policies typically end when you leave the employer. Because retirement often involves ending your employment, group life insurance would likely end for most retirees. However, it depends on the terms of your specific policy and your employer. You also might be able to continue your coverage with an insurance provider that can convert your policy to an individual insurance policy.
Group life insurance from an employer or other type of organization may not be the best solution for your life insurance needs, but it’s not a bad thing to have, especially if you don’t have to pay for it. The requirements for group life policies are low and it’s often included automatically for many new employees. It could make for a decent safety net to get started with life insurance or to supplement an individual policy.
But the coverage options and amounts with group life insurance policies are typically low as well. Be sure to comparison shop with life insurance providers to get the amount of coverage you’re looking for in the event that insurance is needed to cover the financial needs of your loved ones.