Pros and Cons of Group Life Insurance Through Work

Basic life insurance through work is typically free, but coverage amounts tend to be lower than individual policies.

Georgia RoseMar 11, 2021
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If you recently got a new job, or if it’s open enrollment season, you might have a chance to get life insurance through your employer at little or no cost to you.

But is group life insurance a good idea? Here is a rundown of the advantages and disadvantages of getting coverage through work.

What is group life insurance?

Many employers offer free life insurance as a benefit. These employer-provided life insurance policies are sometimes referred to as basic group life. More Americans are covered by these workplace plans than individual plans, according to a 2017 study by the Life Insurance Marketing and Research Association, better known as LIMRA.

Coverage amounts are typically low, often ranging from $25,000 to a multiple of your annual salary. Coverage is generally guaranteed, which means you don’t need to take a medical exam or answer health questions to qualify.

Because basic life policies are free and coverage is typically guaranteed, there’s no reason not to accept it. All you have to do is sign up, and sometimes enrollment is automatic.

Fill out any required forms by the deadline provided, and make sure you name a life insurance beneficiary. Otherwise, the death benefit will automatically go to your estate, spouse or other relatives as determined by law.

Supplemental group life insurance

Many people opt to buy more insurance, known as supplemental life insurance, through their workplace plans.

The amount of coverage available varies among companies, but can reach $500,000 or five times your annual salary. The higher amounts mean you may have to fill out a health questionnaire. The results are used to calculate your rates and eligibility for coverage.

Pros and cons of buying life insurance through work

Here are three main advantages of getting group life insurance through your employer:

  1. Convenience. Getting coverage through work can be relatively easy. The paperwork is often part of your hiring documents, and HR departments are typically on hand to answer questions.

  2. Price. Basic coverage through work is usually free for the employee, making it an easy way to get a small amount of coverage at no cost to you.

  3. Acceptance. Most basic life insurance plans through work are guaranteed, so even people with serious medical conditions can qualify. Select supplemental plans may also allow you to buy additional coverage, up to a set amount, without providing information about your health.

However, depending on your needs and long-term career plans, getting group life insurance through your employer may not be the best option. Here are three disadvantages to getting coverage at work:

  1. Coverage is tied to your job. If you leave your job, you may not be able to take the policy with you. This is often referred to as the policy’s portability. You might be able to convert your group policy to individual life insurance if you leave, but the cost could go up significantly. If your next job doesn’t offer group life insurance, you could buy an individual policy from the open market. However, the cost of life insurance typically increases as you age, and you never know if you might develop a medical condition that could seriously raise your rates.

  2. Limited choice. Coverage through work tends to be a type of term life insurance, and employers typically only work with one carrier. Therefore, you won’t find the range of policy options that you might find outside of work. If you’re looking for a more complex product like whole life or universal life, you should consult a financial advisor.

  3. Low coverage amounts. You might not be able to buy as much life insurance as you need through your employer, as coverage amounts vary and can be low. If you need more coverage, you might want to buy an individual term life insurance policy instead of — or in addition to — your basic group life policy.

How to decide if group term life insurance is right for you

The first thing to do is to take advantage of any free basic group life insurance offered.

Next, compare the cost of supplemental life insurance available through your work to what you can find on your own. You can use NerdWallet’s life insurance comparison tool to get life insurance quotes without entering any personally identifying information.

If you can get a comparable deal on your own, buying supplemental coverage through work may not be worthwhile. Even if the cost of an individual policy is slightly higher, it's still probably a better bet because of its portability.

Figure out how much life insurance you need by using online calculators or talking with a fee-only financial advisor. If you need a substantial amount of coverage, consider buying an individual policy alongside the free group life insurance you receive through work.

If you fear you won’t qualify for competitively priced policies as an individual, perhaps due to a pre-existing condition, group life insurance through your work may be a good idea. Just remember the limitations, especially if you don’t expect to stay at the employer for a long time.

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