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Should You Get Group Life Insurance Coverage?

Credit Sesame

A new job comes with new opportunities, one of which may be the chance to enroll in group life insurance. Many larger companies offer free group life insurance as a benefit to employees, or they may provide the product at a significantly lower cost than an individual insurance product with a similar degree of coverage. It may seem like a convenient, cost-effective solution for ensuring your family’s financial security in the event of your premature death, but before signing on the dotted line, consider the pros and cons. You may be better off purchasing your own insurance product.

Group Life Insurance Defined

Large organizations, such as employers or labor unions, often provide group life insurance. One-third of Americans only have a life insurance policy because an employer or organization offered a group life policy, according to statistics published in the 2015 Insurance Barometer Study. The bulk purchase of coverage makes the cost for individuals significantly lower than the cost for a similar amount of coverage on an individual policy.

Some organizations offer free group life insurance as part of a benefits package. If the organization charges for enrollment in the insurance program, then you can probably have the premiums conveniently deducted from your paycheck. The organization that purchases the policy retains the master contract and is the owner of the policy. As an enrolled member, you receive a “certificate of creditable coverage.” You must provide the certificate for a subsequent insurance company if you terminate your coverage with the existing policy, usually as a result of leaving the organization.

Basic vs. Supplemental Group Life Insurance

The two main types of group term life insurance are basic and supplemental. Basic group life insurance is usually free and covers relatively low amounts, such as just the employee’s annual salary. Supplemental group life insurance provides additional cover, which incurs a cost. It’s possible to purchase coverage with benefits up to three or four times the basic benefit, although this may require a physical exam or health questionnaire.

Advantages and Disadvantages of Group Life Insurance

If basic group life insurance is free through your employer, then there’s no reason not to accept it, as it comes at no cost to you. Choosing to purchase supplemental group life insurance requires more thought because it may be a better option to put that money towards an individual policy. Using an online life insurance calculator can help you determine which options are the most suitable for your financial position and lifestyle.

Advantages

Group life insurance is convenient and low cost. In many cases, simply working for a company entitles you to basic coverage, giving you peace of mind and eliminating the need to hunt for an individual policy or pay any premiums. Basic cover is an excellent way to provide some financial security for your family while you make alternative arrangements with greater benefits. It’s an attractive addition to any company’s benefits package, especially for people who aren’t in a position to spend large sums on other products. Group life insurance is also a good option if you have an existing medical condition, as the insurance provider pools the risk of all members, and there are no medical exams.

Disadvantages

The main disadvantage of group life insurance is that it’s tied to your involvement with a particular organization, most commonly your place of work. While you remain employed with the company, your group life insurance covers you in the event of death, but if you leave or get laid off, you lose the benefits of the group life insurance.

If your new employer doesn’t offer group life insurance, then you need start from scratch and purchase an individual policy. The cost of an individual life insurance policy increases in later life because the risk of death also increases. If you rely on group life insurance throughout your career, then you may find you’ve waited too long to purchase an individual policy, and you’re no longer in a position to afford coverage for your retirement.

Group life insurance is also more limiting than individual products. The available policies may not offer as much coverage as you really need.

Group Life Insurance from Government Agencies

Certain government bodies provide group life insurance for Americans who fall into select demographics. For example, the U.S. Department of Veterans Affairs provides Veterans Group Life Insurance (VGLI). This allows former members of the armed services to continue the life insurance coverage they had when employed and provides lifetime coverage equal to the amount of Servicemembers’ Group Life Insurance (SGLI) they had when they separated from service. The Federal Government established the Federal Employees’ Group Life Insurance Program (FEGLI) in 1954, and it’s the largest group life insurance program in the world, protecting over 4 million federal employees and retirees.

Summary

Basic group life insurance is usually a free benefit of your membership with an organization or employment with a large company, providing limited financial compensation for your family in the event of your death. In addition to free basic coverage, you may wish to take out supplemental group life insurance or a personal life insurance policy to strengthen your family’s future financial security. Shop around for life insurance quotes to find the right products that work for you.

You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved.
Published September 6, 2016
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