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What Is Group Life Insurance?

Group life insurance lets you join forces with others rather than shopping for individual life insurance on the open market. Many of us get group life insurance through work. It’s an automatic box-check, and not something we give much thought. Now is the time to consider the pros and cons of group life insurance, and how much is enough.

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Like group health insurance, group life insurance lets an insurance company pool risk. Say 100 employees of a company all have group life insurance. With people of all ages and health situations, chances are they’re not all going to die at once, right? Insuring a group of people lets the life insurance company hedge risk and use money from all members of a group to make individual payouts as necessary.

How does group life insurance work?

Group life insurance doesn’t require a medical exam, a definite “pro” for folks in poor health, or who fear doctors. When you get group life insurance through your job, it’s part of your employee benefits package and doesn’t hinge on the state of your health. And if you sign up for group life insurance through a professional association or credit union, you probably won’t need to submit to a medical exam or answer questions about your medical history. The fact that you’re part of a group makes you a desirable customer in the eyes of the insurance company, regardless of the state of your health or lifestyle.

Another advantage of group life insurance is that it comes with low premiums. Because the risk to the insurance company is pooled, the company can charge less for covering each member of the group. (Think of it like buying in bulk.) If your health is only so-so, the lack of a medical exam and the low premiums are the primary benefits of joining a group policy. If you’re the healthiest person in the world (congratulations!) you won’t benefit from group rates in the same way, since your premiums for individual life insurance would be low anyway.

Group Life Insurance vs. Individual Life Insurance

Group life insurance isn’t portable, meaning you leave your policy behind when you change employers. Say you start a job at 40 and you get group life insurance as a benefit. At 50, after encountering some health problems, you leave your job. You might not be able to convert your group life insurance to individual life insurance, or you may be charged hefty fees and premium hikes for doing so. If you can’t convert your policy when you leave your job and your health has declined, you’re in a pickle. You may have a hard time finding an affordable individual policy on the open market, or you may be turned down for insurance altogether.

Another disadvantage of group policies is that group life insurance offers less flexibility than individual life insurance. You won’t have the power to negotiate the terms of your policy when you sign up for group life insurance. For example, if the policy isn’t convertible you probably won’t be able to negotiate changes that would guarantee you the right to extend coverage.

The final disadvantage to group life insurance is that it may not offer as much coverage as you need. If you don’t have any dependents and you have plenty of savings that could be used to cover your final expenses, we’re not talking to you. For you, life insurance is probably a nice-to-have, not a need-to-have. If, on the other hand, you have dependents, a mortgage and a high income to replace, you might need a higher-value policy than your group life insurance offers.

What should you do if you find yourself with a group life insurance policy that doesn’t give you as much coverage as you need? Well, some employee policies give you the option of paying group rates for a top-up on the free life insurance you get as part of your benefits package.

For those who don’t have this option, they will need to buy individual life insurance to supplement the coverage they get through work. Individual life insurance policies are portable as you move from job to job, and they come with the option to negotiate riders and terms. You can customize your individual life insurance policy in a way that’s just not possible with group life insurance.

Find out now: How much life insurance do I need? 

Bottom Line

It’s a good idea to say “yes” to a free or cheap policy that you get through work. You may need to top up that coverage, though, depending on how much life insurance you need. Your first step should be to review the details of your group policy and see how it stacks up against your life insurance needs. The right life insurance protects your estate and your dependents, so it’s worth taking the time to make sure you have enough coverage.

Photo credit: flickr

Amelia Josephson Amelia Josephson is a staff writer covering financial literacy topics at SmartAsset. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

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