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The Advantages and Disadvantages of Group Term Life Insurance

Good workers are hard to find. That’s why many companies offer comprehensive benefits packages to attract top talent. One such benefit is group term life insurance. You can get term life insurance either free or at a low cost from your employer. Frequently, there is also the opportunity to purchase more insurance through payroll deductions. 

What is Group Term Life Insurance?

If your employer offers free or low cost group term life insurance, you should take them up on the offer. A company will contract with an insurance company to offer term life insurance to all of its employees. They base the premiums on the demographics of the workers and the sort of work they do. For example, the ratio of women to men, how many workers are over 50, are there any risks involved to the work that they do. Term life insurance is insurance that covers you for a certain length of time, say 10 or 20 years. There is no cash value component to term life insurance.

Your employer either subsidizes the policy or pays for the policy outright. Because the risk is spread out to a large number of people, the premiums are low, sometimes free. Often, you can purchase additional life insurance for spouses and children. Learn more about life insurance for children and if it is worth it

Advantages of Group Term Life Insurance

  • Premiums are usually quite low, or even free
  • Everyone qualifies—no medical exam. Learn more about No Medical Exam Life Insurance
  • Enrollment is sometimes automatic

Premiums are usually low, or even free: If your employer offers group term life insurance for free, there’s no reason not to take it. According the Bureau of Labor Statistics, 98% of people who have access to group term life insurance take it. It doesn’t prevent you from getting an individual policy on your own, either from the life insurance company your employer uses or from someone else. 

Everyone qualifies: Because the risk is spread out over a large group of people, everyone is accepted, regardless of health or age. If you are older or have health issues, you will at least get some life insurance. The iii says that half of all consumers would be more likely to purchase life insurance if there were no medical exam. 

Enrollment is sometimes automatic: As soon as you work the required number of hours or you’ve been at the company a certain length of time, enrollment can be automatic. You can’t find a more convenient way to get life insurance. 

Disadvantages of Group Term Life Insurance

  • Since the company owns the policy, they could drop it due to budget cuts
  • Coverage amounts tend to be very small (about one or two times your salary)
  • Coverage ends when you leave the company
  • If you’re young and healthy, you might be overpaying
  • Supplemental insurance might require a medical exam

Your company owns the policy: Since the company owns the policy, you have very little say in how much coverage you get, how much you pay in premiums, or even whether or not coverage continues. Riders are usually not offered. 

Coverage amounts tend to be small: Most companies will offer just one or two times your salary in life insurance coverage. Most people need much more life insurance than that, especially if they have dependent children. Even if you want to purchase supplemental life insurance through the employer, there’s usually a cap on how much coverage you can get, and it may not be enough. Some online life insurance calculators say that people should get life insurance equal to between 10 and 12 times their salary.

Coverage ends when you leave the company: If you switch jobs at some point, you’ll leave your life insurance behind. Some companies do offer the chance to convert the policy to an individual policy, but it’s still a guaranteed-issue policy and those have higher premiums than if you just went and found your own life insurance. Unless you have health problems, it’s probably cheaper to get a policy on your own. 

If you’re young and healthy, you may be overpaying: Because the risk is spread out, this means that young and healthy workers are probably paying more in premiums than their older coworkers, or their coworkers who have health problems. If the policy is free, there’s no problem, but if you want to purchase supplemental insurance through your employer, your premiums may be higher. 

Supplemental insurance might require a medical exam: After the first $50,000 in life insurance, you may have the opportunity to purchase more insurance, but you may have to answer health questions and the company could deny you more coverage. 

Eligibility for Group Term Life Insurance

Companies offer life insurance as part of a benefits package. If you are a part-time worker, you probably don’t qualify for a benefits package. To be eligible, employees must work a certain number of hours a week or working there a certain amount of time. In some group plans, employees are automatically enrolled when they meet the criteria. 

If you want to purchase supplemental life insurance, you can either sign up when it’s initially offered, or you may have to wait until the open enrollment period.

Where to Get Group Term Life Insurance

Many large insurance companies offer group life insurance, although unless your job is to hammer out the details of benefits packages, you won’t get a choice. You’ll be insured with whoever your company has chosen. State Farm, Mass Mutual, Farmers, Northwestern Mutual are just a few of the companies that offer group term insurance.

Last Thoughts

There is nothing wrong with accepting group term life insurance from your company is it’s free, or even it’s a nominal amount. However, buyers should understand that what is offered to you through group policies isn’t enough life insurance for most people. You can buy some supplemental coverage, but there’s usually a limit. If you are young and healthy, you can probably get better rates than the supplemental insurance offers. If you’re older or your health is compromised, group term life insurance is a good deal. 

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