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Employer-provided group life insurance

You should take advantage of employer-sponsored group life insurance, but don't rely solely on it. Here's why you still need your own policy.

Life insurance is a popular benefit for employers to offer. According to the Bureau of Labor Statistics (BLS), in 2017 59% of non-government workers had access to employer-provided life insurance. Life insurance isn’t as common a benefit as health insurance, so offering it can help draw talent to a company and improve the employer-employee relationship.

This type of insurance is group life insurance; it’s often easier to qualify for than an individual policy, but doesn’t provide the level of coverage many people need. That makes it a form of supplemental life insurance at best.

Because of this, it’s important to know:

What is group life insurance?

Group life insurance is the type of life insurance offered by employers, usually through large carriers like MetLife, Principal or Liberty Mutual. It gets the name from the fact that it’s offered to a large group (in this case, employees of the same company) rather than an individual.

Besides an organization (the employer) being the owner of the policy, group life insurance works essentially the same as individual policies. It’s usually a term policy, which means the coverage expires after a certain number of years. A premium is paid monthly to keep the policy active, covered in full or in part by the employer, and upon the death of the employee a lump sum of money, the death benefit, is paid out to a designated group or person known as the beneficiary.

However, there are some details that make employer-provided life insurance different than personal policies and provide benefits or drawbacks to this insurance type.

Pros of group life insurance

Ninety-eight percent of people who have access to a group life insurance plan take advantage of it. Why is this benefit so popular? Because it’s an easy, affordable start to creating a financial safety net.

It’s easy to get Group life insurance is often guaranteed issue. This means you don’t have to prove insurability, and there are few (if any) hurdles to getting coverage. This is particularly beneficial for employees who are older or in poor health, as it means they don’t have to go through the underwriting process.

If employees don’t enroll when the policy is first offered, they need to wait until a certain enrollment period and then complete an Evidence of Insurability (EOI) form, which is a health history questionnaire, at which point they could be declined.

Learn more about the pros and cons of guaranteed issue life insurance.

It’s subsidized by your employer Much like health insurance, employer-provided group life insurance is subsidized and insulates employees from the full cost of the policy. A certain amount of coverage — typically a set amount, like $50,000, or up to one to two times an employee’s salary — is provided as a benefit at no cost to the employee.

For coverage beyond that amount, employees need to foot part of the bill. Still, group life insurance can provide some coverage for those who can’t afford a life insurance policy on their own yet, or for young, healthy workers who don’t have the financial obligations that necessitate their own policy.

Some life insurance is better than none As you’ll see below, there are drawbacks to relying on group life insurance. But if you’re able to get life insurance for free or cheap through your employer, it’s worth taking. Having some life insurance is better than not having any at all. If nothing else, it provides a subsidized safety net while you build your own.

There’s little obligation to workplace life insurance, so it can be a nice-to-have benefit until you get a more robust individual policy.

Cons of group life insurance

Many people make the mistake of thinking that because their employer offers life insurance, that’s the only coverage they need. However, for most people, this isn’t true. Group life plans are limited in their coverage and options, and it could cost you if you rely on that policy for too long before buying an individual one.

It won’t provide enough coverage

Employees can usually buy additional coverage on top of what their workplace provides, but there are still often maximum benefits allowed through employer-provided plans. According to BLS, the median maximum benefit amount for employer-provided life insurance is $250,000.

While that amount may be enough for some people, it won’t be for others; for someone making $50,000, that only covers five years of income replacement. Depending on your needs, like a mortgage or dependent child, you may require more than the maximum group life insurance coverage offered by your workplace plan.

It’s one-size-fits-all Individual life insurance policies allow you to customize the death benefit amount and term length, and change policy provisions through riders. Riders let you tailor a policy and do things like accelerate benefits in particular circumstances.

While group life insurance policies make certain concessions, they are largely one-size-fits-all that don’t provide the level of customization some people need. That means in addition to being undercovered, the insured may also find themselves with a policy that doesn’t fit their unique situation. And since employees don’t have the option of choosing which life insurance company they want to go with, they aren’t able to make sure they’re getting the best policy available to them.

It’s not portable One of the biggest drawbacks of employer life insurance is that it’s tied to your employment; if you switch jobs or are fired, your policy no longer covers you. If you’ve put off buying coverage because you had a workplace policy, you’ll have to purchase your own if you still want that protection. As you’ll see below, this delay can result in more expensive coverage.

Some employer-paid life insurance policies can be converted to an individual policy if you leave the job. There are two things to consider before you decide whether to take this option:

  • If you're young or in good health, you may find similar policies in the marketplace that cost less.
  • If you're older or in poor health, you may have a hard time finding an affordable policy on your own.

Some basic comparison shopping can help you make a final decision. You can also contact a broker or agent to help you determine if converting your existing plan is the best option.

Group life insurance cost comparison

If you rely on your employer life insurance, you may put off getting a private policy — which can cause a problem if you leave your job for whatever reason. According to the Bureau of Labor Statistics, the average workplace tenure is around four and a half years. If and when you leave your job, you’ll need to start the search for life insurance on your own because your workplace policy isn’t portable.

But life insurance gets more expensive the older you are when you purchase it. Below is a cost comparison for a 30-year, $500,000 policy for a healthy man in New York at ages 30 and 35.

Age 30Age 35
Term Length3030
Coverage Amount$500,000$500,000
Est. Premium Cost (monthly)$33.00$40.00
Est. Total Cost$11,880.00$14,400.00

Over the life of the policy, you would pay nearly $3,000 if you waited five years to buy the same policy. There are caveats here — you might not need a 30-year policy when you’re 35 years old, you may face an unexpected health issue in the interim that raises your premium even further, etc. — but broadly speaking, it’ll cost you the longer you wait to get your own policy.

Again, you may be given the option to convert your group policy to an individual policy when you leave. Because the policy will likely be a guaranteed issue, non-underwritten policy, you’ll pay even more than you would for a properly underwritten policy. So, the only time this is worth considering is if you have a medical condition that would keep you from getting competitive rates on an individual policy.

How much life insurance you need

If group life insurance isn’t enough coverage for you, what’s the best way to decide how much you need?

Most shoppers should take a need-based approach. That means looking at financial obligations that would need to be covered if your income was no longer available. This includes:

  • Existing debt, such as a mortgage
  • The future cost of college for children
  • The cost of caring for dependents, including children or aging parents
  • Any financial cushion you want to leave your beneficiaries
  • Paying for end-of-life expenses

For more information and tips, see our explainer on how much life insurance you need or use our insurance checkup tool.

At the end of the day, if your employer offers life insurance at no cost to you, you should take advantage of it. But group life insurance should be supplemental coverage. Don’t forgo shopping for an individual policy because you think your employer coverage is enough — because it most likely isn’t.

Read more

Term life insurance

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Term life vs whole life insurance

Most shoppers will need to decide between term and whole life insurance. Which one is right for you? Find out.

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Different types of life insurance

There are a lot of different types of life insurance out there. We'll help you find the right one for every scenario.

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Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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