Group term life insurance is mostly the same as individual term life insurance, except it is offered to a group of people, usually through work. Term life insurance, no matter what type, provides a death benefit if the insured dies within a prespecified period of time.
Group term life insurance gives a specific group of people an option to have life insurance at a discounted rate, making it very appealing. It’s common to see employers offer this as a benefit, it’s also found in different organizations as a membership benefit.
How Does Group Term Life Insurance Work?
All term life insurance policies have predetermined time periods, usually from one-to-30 years. If the insured individual dies before the term ends, their beneficiaries get a financial payout. A group policy is similar except that it’s offered to a group of people, not just individuals. As long as you’re part of that group and the group offers that policy, you have the option to keep that policy active.
When a group signs up for this type of life insurance, the rates are often deeply discounted. In addition, if it’s offered through your work, your employer may pay part or all of the premiums, making it a good choice. This allows you to have term life insurance without the higher fees you’d pay if you bought the policy on your own.
Note that group term life insurance may not offer all the coverage or benefits an individual policy provides. It’s a good idea to compare policies to see what is offered and determine what benefits matter most to you.
Despite any shortcomings of group term life insurance, it’s still coverage, and the price is often very affordable. According to the Insurance Information Institute, 106 million adults lack life insurance or adequate coverage. Group policies allow you to add this coverage easily.
Eligibility for Group Term Life Insurance vs. Individual Term Life Insurance
The primary requirement for group life insurance eligibility is based on your affiliation with that group. You might need to be employed full-time or have been with the company for a specific amount of time, but once you achieve that, you’re covered. Coverage usually lasts throughout your association with that group, whether it’s your employer or another organization.
With individual term life insurance, there might be some qualifications in place that you need to meet for coverage. This can include medical underwriting, which means you’ll have to answer health questions and possibly have a physical. Your age can also play into your eligibility for individual term life insurance.
Premiums for Group Term Life Insurance vs. Individual Term Life Insurance
The most significant benefit of group term life insurance is the cost. If your employer pays the monthly premium or expense, then it’s free for you. Even if they do not pay for it, the rates are much more affordable than if you were to obtain a personal policy. Because a group is insured, the risks are spread amongst many people, making it possible for insurance companies to offer deep discounts.
Benefits for Group Term Life Insurance vs. Individual Term Life Insurance
The amount an insurance company pays your beneficiary at your death is called the death benefit. There is usually a difference between group and individual policies in terms of the death benefit amount, which can also play into the disparity in premium fees. Group term life insurance tends to be lower than an individual policy.
Many employers will pay for their employees to have a death benefit of one year’s salary. Additional amounts can usually be added with the cost of that then falling on the employee.
Your employer does not dictate individual life insurance plans, so you can select as much or as little coverage as you want. Some people choose to layer a work-sponsored group policy on top of their individual coverage.
Coverage Length for Group Term Life Insurance vs. Individual Term Life Insurance
The policy term length is another crucial piece of data regarding term life insurance. The terms vary according to policies.
Usually, individual term life insurance comes with a yearly option to renew or terminate, or they’re established for 10, 20, or 30-year terms. Basically, there are short-term options and then longer-term policies. When the term is over, if you do not renew it, it terminates, and there is no death benefit payout.
With a group plan, your policy is active for as long as you’re a qualifying member of that group and that policy is still offered. Once you leave your job or if you drop down to part-time and you no longer qualify for this benefit, the insurance coverage terminates. Keep in mind that employers are not required to offer life insurance as a benefit to their employees. If for some reason they stop offering benefits, you may lose your coverage.
Combining Group Term Life Insurance with Other Life Insurance
If you already have life insurance, whether it’s an individual term policy or a different type of policy, it’s a great idea to take advantage of offered group life insurance plans. Having more than one life insurance policy is allowed and quite common, especially when one of the policies is offered by a group and comes at no charge or with a very minimal premium fee.
Having multiple policies might be the best way to protect your family or loved ones in the event of your death. The benefits can work together to pay for your funeral expenses and outstanding debts, they can work as replacement income, and more.
Coming from the opposite side, if you are taking advantage of a group life insurance policy already, you might want to consider supplementing it with an additional policy. This gives you layered protection for your beneficiary. You also get some options with your secondary coverage that might not be provided by a group plan.
Term Life vs. Whole Life Insurance
Two options for individual life insurance include a term life policy or a whole life policy which is sometimes called permanent life insurance.
Term Life Insurance
Term life insurance is a policy that is in place during the term specified in the contract. There are some benefits to this type of policy and some downfalls. Pros of term life insurance include:
- Easy to understand
- Tax-free death benefit
- Flexible payment schedule
- Policy options
- No penalty for canceling
Cons of term life insurance include:
- Temporary coverage
- No cash value
- Upper age limits
Whole Life Insurance
Whole life insurance is sometimes called permanent life insurance because it lasts until your death, guaranteeing your beneficiary gets a payout. This is one of the pros of whole life insurance, but there are other positives to this type of insurance as well as some negatives. Pros of whole life insurance include:
- Guaranteed death benefit/payout
- Predictable premiums
- Can build cash value
- Can include living benefits
- Tax advantages
Cons of whole life Insurance include:
- More expensive than term life insurance
- Can be difficult to understand
- Can take some time to build cash value
- Not as flexible as other policies
Converting Group Term Life Insurance to Individual Life Insurance
Not all group term life insurance policies let you convert to an individual life insurance plan, but some of them do, and that’s worth exploring. If you’re leaving your group, whether it’s a work group or another association, you might be able to take your life insurance with you. However, most companies do not allow you to keep your coverage once you leave the group.
Each policy is different, with some not allowing a conversion, some completely allowing it, and other policies only allowing you to convert the amount you pay above and beyond what is offered to the group.
That said, if a conversion from a group to individual life insurance is allowed, there is usually a smooth transition without medical underwriting. One thing you can count on is that there will be an increase in premiums because of the policy change.