Cost & Coverage
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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.
Group life insurance is offered by many employers and is an easy way for employees to get some life insurance coverage for free or at a very low cost
However, group life insurance does not provide enough coverage or flexibility for most people, especially those with families or dependents
You may need to buy an individual life insurance policy in addition to participating in your employer’s group plan to ensure that you have enough life insurance coverage
It could cost you if you rely solely on your employer’s group life insurance for too long before buying a policy of your own
Life insurance is a popular benefit for employers to offer. According to the Bureau of Labor Statistics (BLS), in 2019 60% 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 life insurance policy, but doesn’t provide the level of coverage many people need. That makes it a form of supplemental life insurance at best.
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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:
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.
Group life insurance is often guaranteed issue. This means 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 may need to wait until their employer’s open enrollment period and then complete an Evidence of Insurability (EOI) form, which is a health history questionnaire, at which point they could be declined.
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.
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.
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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.
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. A good rule of thumb is to have life insurance coverage that’s 10 to 12 times your income. (For example, someone with a $50,000 salary should aim for at least $500,000 in coverage.) 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. You can use our free coverage calculator to figure out the right amount:
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.
Group life insurance policies, on the other hand, are largely one-size-fits-all and don’t provide the level of customization some people need. That means in addition to being underinsured, you may also find yourself with a policy that doesn’t fit your unique situation.
Since employees don’t have the option of comparing and choosing which life insurance company they want to go with, you aren’t able to make sure you’re getting the best policy available to you.
One of the biggest drawbacks of employer life insurance is that it’s not portable — it’s tied to your employment, so if you switch jobs or are fired, your policy will no longer cover you.
You may be given the option to convert your group policy to an individual policy if you leave your company. But 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 if you choose to convert. 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.
And, as you’ll see below, when you rely solely on employer-provided group life insurance and put off buying your own plan, this delay can result in more expensive coverage down the road.
"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."
Group life insurance cost depends on your individual company and the benefit amount. You may be expected to contribute some money to it, or the cost may be completely covered by your employer.
Note that how a group policy is paid for can have tax implications.
If and when you leave your job, you’ll need to start the search for life insurance on your own since your workplace policy isn’t portable. According to the BLS, the average workplace tenure is around four and a half years.
But life insurance gets more expensive as you age. 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 30||AGE 35|
|Est. Premium Cost (monthly)||$28.58||$31.02|
|Est. Total Cost||$10,289.00||$11,167.20|
If your employer offers group life insurance, you’ll typically be able to enroll in the plan when you’re first hired.
If you decline coverage at that time but change your mind later, you may need to wait until your employer’s annual open enrollment period to sign up. Because the open enrollment period differs from company to company, you should check with your HR team or benefits manager for the exact dates.
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.
Most of the country’s top life insurance companies offer group insurance, including:
Check with your HR team or benefits manager to find out who provides your company’s group life insurance and when you can apply.
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Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
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