Pro's and Con's of a Group Life Insurance Policy
According to the Insurance Information Institute, around 60 percent of adults in the United States had some type of life insurance policy in 2018.1 Many employers offer a group, or group term, life insurance policy, which covers a large group of people with life insurance benefits. A policy like this is a great addition to traditional benefits packages if your company is offering it to you, but you may need additional life insurance as well. Below we’re discussing the pros and cons of a group life insurance policy and whether or not this type of coverage is right for you.
What Does Group Term Life Insurance Cover?
Usually, group term life insurance will cover an employee over a specific period of time. This is normally the time during which you are actively working with the company. If you leave that place of employment, the group life insurance coverage ends.
Your place of employment will pay either part or all of the premium to cover the cost of the life insurance policy, depending on what your company decides to pay on your behalf. They will hold the master contract for the policy but will provide you with a certificate of coverage. You will also get to name a beneficiary for the policy, as with any type of life insurance. The beneficiary is the person who will receive the money in the event that something happens to you. The lump sum of money they’d receive upon your passing is called a death benefit.
According to the Bureau of Labor Statistics, an overwhelming 98 percent of people who are offered life insurance at their jobs, whether at private or government ones, take them up on that policy.2 Based on this evidence, this additional offering by employers is an enticing one that the majority of eligible employees choose to use.
Pros of a Group Life Insurance Policy
Pro: It’s Easy to Obtain
With most group life insurance policies, there isn’t an underwriting process where an employee’s health is analyzed. You simply sign up, and you're covered.
Pro: Your Employer Pays
In most cases, your employer will pay for the entire insurance premium. You won’t have to put in any additional money for a set amount of coverage. For example, the company may offer a benefit of three times your annual salary without any cost to you. If you want more than that, they may offer additional benefits with a cost you’d be responsible for paying.
Pro: Age Typically Doesn’t Matter
In the same way that your health isn’t an issue, neither is your age. Sometimes the price will increase with your age, but your employer will usually cover that regardless.
Cons of Group Life Insurance
Con: It May Not Be Enough Coverage
The coverage offered may not be enough if, for example, you have a large family. You may need to purchase your own life insurance policy independent of your job. It’s up to you to decide how much your family will truly need to survive financially after you’re gone.
Con: Coverage Ends When You Leave
If you’re let go or leave your job, your group life insurance coverage doesn’t go with you. It doesn't mimic a retirement savings account that you can simply transfer or rollover. You’d have to obtain new group life insurance through your new job, or buy your own life insurance policy.
Con: You Don’t Get to Pick the Plan
Your employer chooses the insurance carrier for a group life insurance plan. You likely won’t have any say in it. Additionally, there isn’t going to be much you can customize with it either.
How to Obtain Group Life Insurance
When you’re hired, more than likely, your new employer will offer you the chance to sign up right away for group life insurance. Some companies may make you wait a probationary period before signing up, as they want to be sure you’re going to stay with the company for an extended period of time.
Once they offer you group life insurance benefits, you'll likely have to decide right away. If you wait, it could be a significant amount of time before the next open enrollment period occurs. If you miss your initial opportunity, you’ll be uncovered for that amount of time, unless you have your own private life insurance policy.
If you’re unsure about your current coverage, talk with the human resource department at your job. They will be able to go over your coverage options and answer any questions you may have. And if you think you may need additional or separate coverage, your financial advisor or insurance agent can help.
Knowledge is power. It is also the foundation for intelligent, well-considered decisions. When you have retirement in sight, sound decisions are vital in helping you pursue your goals and avoid costly mistakes that can affect your future. We invite you to explore our educational resource hub – your go-to outlet for accessing the latest financial insight and information to help you make sound, prudent decisions concerning your future financial objectives.
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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.