Should You Get Life Insurance Through Your Employer?

It’s open enrollment season once again, which means perusing that buffet of employee benefits. Among those available, you might notice your company offers a group life insurance plan.

What is that, exactly? And is it a good idea to get this kind of life insurance through your employer, or should you strike out on your own and buy an individual policy? Here’s what you need to know before deciding.

WHAT IS GROUP LIFE INSURANCE?

You’re probably participating in one or perhaps several group insurance plans through work. It might be health insurance, dental coverage, vision care, and more. In general, a group insurance plan offers guaranteed coverage and standardized rates for members of the group — employees of the company, in this case.

Many businesses also offer the option to participate in a group life insurance plan. In fact, more than 100 million Americans have at least some life insurance coverage through an employer-sponsored group life plan. There are two types of group life coverage:

Basic life insurance, if offered, is generally provided at no cost. The amount may be fixed, as in everyone receives the same benefit. Or coverage may be a multiple of your annual salary, typically one to two times what you earn. You may be given this free coverage by default (but check to ensure it’s been selected before completing the process).

Supplemental life insurance is sometimes offered in addition to the basic life policy. You’ll pay out of pocket for this level of protection, but you’ll continue to enjoy group-based rates. The added benefit is that you can purchase anywhere from a few thousand dollars to several times your annual salary.

RELATED CONTENT: Our Life Insurance Guide can help you learn more about life insurance and how it can benefit your financial plan.

Though basic group life coverage typically won’t require a health check, the rules may differ for supplemental coverage, particularly for higher amounts. You may be required to fill out additional forms, share medical history details or get a physical exam. And, while your basic coverage is guaranteed under the plan, the insurer might reject your application for supplemental coverage.

WHAT TO LIKE ABOUT GROUP LIFE INSURANCE

The big advantage with group life coverage is its convenience. If you’ve been putting off buying a policy of your own, you can easily opt-in to your employer’s plan for coverage during the open enrollment period. Even if you plan to get your own policy someday, putting some coverage in place right now beats having no protection in place at all.

When you join a group plan, you’ll avoid the legwork typically involved with signing up for a policy of your own. Even if you need to fill out a health questionnaire to qualify for supplemental coverage, you’ll generally avoid a medical exam and other time-consuming processes. 

POTENTIAL DRAWBACKS OF GROUP LIFE INSURANCE

While there are definite benefits to participating in your employer’s life insurance plan, it may not always be your best option. There are a few reasons for this:

You might get a better deal on your own. Particularly if you’re young or in good health, your quoted rate for an individual policy may be less than the group rate.

Your group policy may not suit your needs. If you’re looking to get a whole life or universal life insurance policy, your workplace’s term insurance won’t work for you. Employer-sponsored life insurance generally caps the death benefit, as well. So, if you need more, you’ll need to look elsewhere.

Coverage generally isn’t portable. This is a biggie. If you leave your job, you may find yourself without life insurance. You’ll suddenly need to sign up for a new policy — either through your new employer or by purchasing individual coverage. If you do leave your company, you could face a possible insurance rate increase. Your age and any new health problems could mean costlier supplemental coverage at your new job.

Your rates may not be locked in. Even if you stay with one employer, your premiums may still go up over time. Some individual term plans offer a consistent rate for the length of the term. But your group policy might raise your rates over the years. It works the other way, too. The company can cancel its contract with the life insurance provider at any point. That means you may unexpectedly become uninsured.

If you’re thinking about participating in a group life plan, definitely take the time to review the fine print. Is joining the plan the right move for your circumstances — or at least the best move right now?

When you have the time, get some quotes for individual life insurance coverage. Or talk to a trusted financial advisor to ensure your family is safely protected with the right life insurance policies in place.