Life Insurance Basics
Group life insurance, also called group term life insurance, is one life insurance contract that covers a group of people. Employers commonly offer it as part of a benefits package: 60% of non-government workers had access to employer-provided life insurance in 2021. Group policies are easy to qualify for and affordable, but they rarely provide the level of coverage an individual needs. To fully protect their loved ones, individuals should buy a term life insurance policy to complement their group plan.
What is group life insurance?
Group life insurance is usually offered by employers, but may also be offered by unions and trade organizations. As the name suggests, coverage is offered to a large group, rather than an individual.
Group term life insurance is often subsidized by the policyholder (e.g., your client's employer), so they pay little or none of the policy’s premiums. They get coverage up to a limit, usually $50,000 or one to two times their annual salary (up to a limit).
How does group life insurance work?
Other than the coverage restrictions and who owns the policy, group life insurance works essentially the same as an individual term life policy:
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Monthly or annual payments keep the policy active.
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Policies expire after a certain period (for group life, coverage is often renewed yearly by the policyholder).
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The insurer pays a death benefit to a designated beneficiary for most causes of death.
Most employers don’t let their employees keep their group life insurance if they leave the company. If they do let their employees take the coverage with them, it’s usually more expensive to keep it than to buy a new policy on their own.
Keeping or converting a group policy can be a good option if your client has had difficulty qualifying for their own life insurance in the past. The process doesn't require a medical exam.
Should your clients get group life insurance?
There’s no reason your clients should not join their company’s life insurance plan. It’s an easy, affordable way to start a financial safety net for their family. But, if your client's loved ones rely on them financially, your client should own a personal term life insurance policy too.
Policygenius experts recommend having a death benefit of at least 10 to 15 times your income to prevent your client's family from being underinsured — significantly more than an employer-sponsored plan offers.
"The combination of benefit limits, inability to customize, and portability restrictions means that only having life insurance coverage through your group plan will almost always leave you under-protected,” says Patrick Hanzel, Advanced Planning Specialist and certified financial planner at Policygenius. “A strong financial plan requires limiting these risks whenever possible."
Signing up for free life insurance coverage is a good idea for just about anyone, especially for people who might struggle to qualify for an individual policy. But group life insurance alone isn’t enough coverage for most people, so they should pair it with an individual policy. They'll avoid a coverage gap and ensure their loved ones are fully protected.
Only having life insurance coverage through your group plan will almost always leave you under-protected.
Patrick Hanzel, Advanced Planning Specialist and Certified Finanical Planner, Policygenius
Questions or want to learn more?
What is supplemental group life insurance?
An individual's company may give them the choice to buy life insurance coverage on top of their employer-sponsored plan. This is called supplemental life insurance, optional life insurance, or voluntary life insurance.
The type of coverage and specifics around premiums vary by employer. Some employers offer a choice between additional term or whole life insurance. Some allow employees to add riders to their group life insurance policy. For other businesses, voluntary life insurance may only refer to additional accidental death and dismemberment (AD&D) or burial insurance.
How to get supplemental life insurance
Like an individual's employer-sponsored group life insurance, it’s likely a supplemental policy will be guaranteed issue up to a certain amount — guaranteed-issue policies are aimed at paying final expenses and usually don't require medical prerequisites for approval. However, if they'd like to add supplemental coverage that is greater than their employer’s set coverage limits, they may need to provide more information to the insurer.
This could be as simple as completing an Evidence of Insurability (EOI) form and sharing financial information with an underwriter, or they could be required to go through a full medical exam. If they have health problems or can’t prove a financial need for supplemental coverage, they could be declined.
Cost of supplemental life insurance
The cost of voluntary life insurance varies based on:
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How much coverage an individual wants
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Their age
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Whether their employer subsidizes any premiums
Insurance companies usually categorize employees and assign group insurance premiums by age. The older the employee is, the higher their rates will be. If their voluntary life insurance is a guaranteed issue policy, then they might pay more than they would for an underwritten private policy, since they'll be skipping the insurer’s health and risk evaluation.
Depending on an individual's policy, their supplemental coverage might be portable. That is, they might have the ability to take it with them if they lose or leave their job. However, if they do choose to take the policy with them, the premiums often go up substantially once they leave the group life plan.
Who should get supplemental life insurance?
Supplemental life insurance can make sense if an individual has been declined by private life insurance in the past because of their age or a chronic illness. In that case, supplemental life insurance through their employer could be a good way to get the additional coverage they need.
If they don’t need a large amount of supplemental coverage (for example, if their mortgage is paid off and they no longer have children to support but are looking to cover burial expenses), then a guaranteed issue supplemental policy can help them avoid a medical exam or other questions about their insurability.