You should take advantage of employer-sponsored group life insurance, but you still need to have a private policy to avoid being underinsured.
Updated April 5, 2021|5 min read
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Group life insurance (also called group term life insurance) is a popular benefit offered by many employers. According to the Bureau of Labor Statistics (BLS), in 2020, 60% of non-government workers had access to employer-provided life insurance and 98% of those workers participated in their company plan.
It’s easier to qualify for group life insurance than an individual life insurance policy, but group policies rarely provide the level of coverage you need. To fully protect your loved ones, you should buy a term life insurance policy with coverage at least 10-15x your income that’s complemented by your group plan.
Group life insurance is an easy way for employees to get some life insurance coverage for free or at a very low cost
Employer-sponsored policies do not provide enough coverage or flexibility for most people, especially those with dependents
Owning an individual life insurance policy on top of a group plan ensures that you have enough coverage
Group life insurance is a type of life insurance offered by employers, usually through large insurance companies like MetLife or Liberty Mutual. As the name suggests, it’s offered to a large group (in this case, employees of the same company), rather than an individual.
Much like health insurance, employer-provided group life insurance is subsidized, so you’ll pay little or none of the policy’s premiums. You receive a small amount of coverage, usually $50,000 or one to two times your annual salary (up to a limit).
Besides your employer being the policy owner, group life insurance works essentially the same as an individual term life policy:
The coverage expires after a certain number of years.
Your employer pays some or all of the premiums, either monthly or annually, to keep the policy active.
Upon your death, a death benefit is paid out to a designated group or person known as the beneficiary.
Most employers don’t let you keep your group life insurance if you leave the company. If they do let you take the coverage with you, it’s usually more expensive to maintain the policy than to buy a new policy on your own.
Though most employers don’t let you keep your group life insurance when you leave your job, some give you an option to port or convert your coverage. Buying your own policy will usually be more affordable and better fit your needs, but porting or converting a group term policy can fill a coverage gap while you change jobs.
Life insurance portability: Porting your life insurance allows you to stay on your employer’s group life insurance plan even after you leave your job. The benefit is still managed by your employer, but you’re solely responsible for paying your premiums.
Life insurance conversion: Converting your group life insurance policy turns it into an individual life insurance policy completely separate from your employer. You pay for and manage the policy on your own.
You can typically port or convert your group policy without taking a medical exam, which may make it a good option if you’ve had difficulty qualifying for traditional coverage in the past. Most people will get more value and flexibility by seeking out an individual policy.
Group life insurance isn’t available to everyone. If your employer doesn’t offer group coverage in their benefits package, you cannot get this type of policy.
Eligibility for group life insurance coverage also varies by employer. Some organizations may require a minimum tenure to qualify and will only allow employees to opt-in after their first 90 days.
Unlike most private life insurance policies, your health and age rarely determine whether you qualify for group life insurance. You probably won’t need to go through the underwriting process to get coverage.
There’s no reason not to join your company’s life insurance plan. It’s an easy, affordable start to creating a financial safety net for your family. However, Policygenius experts recommend having a death benefit of at least 10-15x your income to prevent your family from being underinsured—significantly more than an employer-sponsored plan offers. If any loved ones rely on you financially, you should own a personal term life insurance policy too.
"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."
Only having life insurance coverage through your group plan will almost always leave you under-protected.
While there are no major drawbacks to getting life insurance as an employee benefit, it’s important to understand the pros and cons.
Easier approval for older or less healthy people
Premiums subsidized by your employer
Decreases the amount of private life insurance you need
Smaller death benefits don’t provide enough coverage
You can’t customize coverage with riders
You don’t normally keep the plan if you leave your employer
If your death benefit is over $50,000, part of your premiums may be taxed
While your employer may pay some or all of your group life insurance premiums, you could still be on the hook for some associated taxes if your coverage exceeds $50,000. Above that threshold, a portion of the premiums paid by your employer are categorized as imputed income, which refers to any benefits from your employer that are not part of your salary but are considered taxable by the IRS.
The taxable amount varies on an individual basis, but you should be able to find it on your paycheck:
Group life as imputed income: Group term life coverage above $50,000 is considered imputed income by the IRS. The taxable amount is calculated based on your group term policy and what percentage of the premiums your employer subsidizes.
GTL on paycheck: If your group life policy is taxable, then you may see a line labeled “Group term life” or “GTL” on your paystub. This records the premiums your employer paid toward your coverage that are taxable.
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The cost of group life insurance depends on your company and the benefits it offers. You may be expected to contribute some money to your premium payments or the cost may be completely covered by your employer.
If you leave your employer and can port or convert your policy, premiums will most likely be higher than for a policy you buy on your own.
If your employer offers group life insurance, you’ll typically be able to enroll in the plan when you’re first hired. If you don’t enroll when the policy is first offered, you may need to wait until your next open enrollment period.
The open enrollment period is also an opportunity to change or update any existing benefits you have. Depending on your employer’s group life insurance plan, you may be able to increase your coverage during open enrollment. Because open enrollment periods differ from company to company, check with your HR team or benefits manager for exact dates.
Your company may offer you the opportunity to buy life insurance coverage on top of your 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 may offer an accidental death and dismemberment policy or optional life insurance riders to customize your coverage. Others may allow you to increase the death benefit of your group life policy.
To get additional coverage, you may need to complete an Evidence of Insurability (EOI) form, which can include a medical questionnaire. If you have health problems or can’t prove a financial need for supplemental coverage, you could be declined.
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Signing up for free life insurance coverage is a no-brainer and we recommend taking advantage of group life insurance policies offered by your employer. Because group life insurance alone isn’t enough coverage for most people, it’s important to pair a group life insurance policy with an individual life insurance policy. You'll avoid a coverage gap and make sure your loved ones are fully protected.
Group life insurance is owned and paid for by your employer. It pays out a death benefit to your named beneficiaries if you die while the policy is active.
Group life insurance offers less coverage than term life and is often cheaper and easier to qualify for, but the coverage is tied to your employment. Term life insurance offers much more coverage and stays with you until the policy expires, but may require a medical exam.
The cost of a group plan varies by employer. Some cover the entire premium, while others may require you to pay a small percentage of your premium.
You usually can’t keep your group policy if you leave your job. You may be given the option to continue paying for the coverage on your own, but you can usually find a cheaper individual policy that’s tailored to your needs.