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Group vs. Individual Life Insurance

Life insurance is a policy that provides a payment to your named beneficiaries upon your death. In general, life insurance is a good idea if you have a spouse, children, or any other people who depend on you and your income. It protects them from devastating financial losses if you die and they lose your income. Some life insurance policies are also designed to help pay off your remaining debts, medical expenses, and funeral costs, further easing the financial burden.

Life insurance can be categorized as an individual or a group policy. Individual policies are taken out on one specific person and customized for that individual, whereas group policies are usually offered through your employer and are rolled into your benefits package. Both policies offer a payout upon your death to your beneficiaries, but beyond that there are a lot of differences between the two life insurance plans. In fact, many people opt to have both for added protection.

Group vs. Individual Life Insurance at a Glance

Group life insurance is usually offered through an employer and costs nothing or nominal amounts for the insured, coverage is minimal, and it’s offered to everyone. Individual life insurance may cost more, can have much higher payouts, and might have some qualifications you’ll need to meet.

Group Life Insurance
Individual Life Insurance
Medical & Health Exams
Typically none
Typically required
Offered through employee benefits package as free or nominal amounts, can increase in price annually
Varies widely, depending on your individual policy, your health, and your age
Death Benefit
Limited options
Can have unlimited options, depending on qualifications and policy
No; policies remain with employer though policyholders may have the option to convert to an individual policy upon leaving
Yes; policies belong to the individual no matter where they live or work
Cash Value
Typically, none
Depends on the type of policy

Understanding Group Life Insurance

Group term life insurance is usually offered through your employer, but there are also policies offered through other groups that you may belong to including alumni associations, AARP, certain national associations, veteran’s organizations, and some membership organizations.

Group life insurance is the most common form of life insurance in the United States. It provides security without requiring you to make large premium payments or to have a physical. It’s typically easy to sign up for, and it then remains in effect through your employment or until there’s a change in insurance plans. Signing up for group life through work usually happens when you’re first hired or during an enrollment period.

If this is offered by your employer, it’s something you should take advantage of, especially if there is no cost to you. However, a group life policy might not be enough coverage and a supplemental policy may be necessary.

Group life insurance is a term policy, which means that it may end at some point – that point might not be when you die. Most group term life insurance policies end when you leave your job whether you quit, are fired, or retire. After that, you no longer get any benefits from that policy.

Advantages of Group Life Insurance

  • Convenience – Not having to research and find a life insurance policy can be a big benefit to some, so is having an HR department on hand to help with questions
  • Price – Many employers offer free group life insurance while others charge something but it’s typically a low expense
  • Acceptance – Most basic life insurance through work has guaranteed acceptance and no health exam or questionnaires

Disadvantages of Group Life Insurance

  • Employment term – This is a term policy that is tied to your employment; it’s also known as a non-portable policy
  • Limited options – Some group life policies have a few options and others have none at all
  • Low coverage – Payouts for group life insurance typically aren’t much; they will help defray funeral expenses and assist dependents but will not replace your income

Understanding Individual Life Insurance

Individual life insurance comes with a lot of options that aren’t available with a group life insurance policy. While both policies are designed to pay your beneficiaries upon your death, an individual policy looks at you specifically to determine your eligibility and rates. It can also be customized to meet your family’s or dependents’ specific needs.

It’s the flexibility of an individual life insurance policy and the added financial benefits that make it appealing, even to people who already have group life insurance.

The two most popular life insurance policies for individuals are term life and whole life. Term life expires at a set date, or the price may go up significantly at that date, much like group life expires when you leave your employer. If you do not die before the term is up, there is no benefit. Whole life offers a coverage guarantee and lasts until your death.

Individual life insurance is usually more expensive than group life because there is more risk to the insurance company and a larger payout to the beneficiaries. There typically is an element of underwriting involved also. Underwriting is a process you’ll have to go through to determine if you qualify for insurance and how much you qualify for. Underwriters will look at your health, your work situation, and your lifestyle to determine if you are eligible.

Advantages of Individual Life Insurance

  • Financial protection – The biggest advantage is being able to select what you feel is an appropriate amount of financial protection for your beneficiaries
  • Flexibility – Individual plans offer flexibility in the type of plan you can purchase, how payments are structured, and cash value options may be available
  • Preparedness – It’s smart to plan for the future of your dependents to ensure that, even in your absence, they’ll be taken care of

Disadvantages of Individual Life Insurance

  • Underwriting – To get coverage, an underwriter will review your health and lifestyle which means that you might not qualify
  • Price – While group life insurance is a relatively inexpensive option an individual plan is considerably more expensive than a group life policy
  • Not always necessary – In some situations, individual life insurance policies aren’t necessary, at which point they’re just an added expense

Do You Need Individual Life Insurance If You Already Have Group Insurance?

Determining how much life insurance you need is really about how much life insurance your dependents would need without you. If you’re single, young, healthy, and have no dependents, then you probably don’t need an extra life insurance policy. As long as your group policy is enough to cover your debts and funeral expenses, then you’re set.

If you have children or other people who depend on you, it’s worth taking a deeper look into what would happen if they suddenly lost your income. If you see that they would definitely suffer a financial hardship without your income, then an additional life insurance policy is a smart investment, offering them protection and giving you peace of mind.

One thing to look into is if your employer’s selected insurance company offers supplemental life insurance. This can be a more affordable way to add coverage to your existing policy without any underwriting requirements.

If you’re concerned about the fact that the group life insurance through your employer is a term policy, an individual whole life policy might better suit your needs. It is sometimes possible to get a group policy that is portable and stays with you if you leave your job, and this is something to consider, too.

It’s important to note that your life insurance needs will likely change over time. When you’re young and don’t have children, you don’t need much life insurance. Likewise, when your children are adults and on their own, you typically don’t need much life insurance. The decisions you make today about life insurance aren’t permanent and you can add or subtract individual policies down the road. Just note that the older you get, the more likely you are to have health issues and pay a higher premium.

Plan for your family’s future. Get a life insurance quote today.

Get a quote

Plan for your family’s future. Get a life insurance quote today.

Get a quote