Pros and Cons of Group Life Insurance Through Work

Basic life insurance through the workplace is typically free, but could leave you underinsured.
Georgia Rose
By Georgia Rose 
Edited by Katia Iervasi Reviewed by Tony Steuer

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If you recently got a new job or if open enrollment season has started at your workplace, 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.

Your family is unique — your life insurance should be, too.

What is group life insurance?

Many employers offer life insurance as a workplace perk and subsidize some or all of the benefits. These employer-provided life insurance policies are sometimes referred to as “basic group life."

Coverage amounts are typically capped at low amounts, such as one to two times your annual salary. Let’s say your salary is $50,000 per year — your employer might provide a group policy with a life insurance face amount of $50,000 or $100,000. The coverage is generally guaranteed issue, which means you don’t need to take a life insurance medical exam or answer health questions to qualify.

Since employers usually cover premiums and you won’t be declined for coverage, there’s no reason not to sign up for group life insurance.

Fill out any required forms by the deadline provided, and make sure you name a life insurance beneficiary. Otherwise, the policy payout will automatically go to your estate, spouse or other relatives as determined by law. It may also be subject to probate.

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 typically maxes out at around $500,000. The higher life insurance death benefit amounts mean you may have to fill out a health questionnaire to qualify. The results are used to calculate your rates and eligibility for coverage.

Pros and cons of buying life insurance through work

Here are the main advantages of getting group life insurance through your employer.

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

  • Price. Basic coverage through work is usually free or offered at a low cost for the employee, making it an easy way to get a small amount of coverage. 

  • Acceptance. Most basic life insurance plans through work are guaranteed, so even people with serious medical conditions can qualify. However, you might need to provide information about your health if you want to buy supplemental life insurance.

While group life insurance is a “work perk,” it might not be sufficient for your needs. These are the downsides: 

  • Coverage is tied to your job. Group life insurance is often not portable. This means if you leave your job, you may not be able to take the policy with you. You might be able to convert your group policy to individual life insurance, but the price could go up significantly. If your next job doesn’t offer group life insurance, you can buy an individual policy from the open market. 

  • 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 insurance or universal life insurance, you might want to compare prices on the open market first and speak with a fee-only life insurance advisor before proceeding. 

  • Low coverage amounts. If you have dependents or a lot of financial obligations, a group life insurance policy could leave you underinsured. Use our calculator to figure out how much life insurance you need. If your group coverage is worth less than this amount, you might want to buy an individual policy on your own to ensure you and your family have adequate coverage. 

  • Premiums aren’t fixed. The premiums for group life insurance go up either on an annual basis or every five years.

Did you know...

If your employer pays for your coverage, the premiums for coverage over $50,000 may be subject to income tax. The first $50,000 worth of coverage is tax-free.

How to decide if group 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, it may be worth buying an individual policy to complement the group life insurance you’re getting through the workplace.

If you’re older or have a medical condition that prevents you from getting competitively priced coverage on the open market, supplemental group life may be a good fit. Just remember the limitations, especially if you don’t expect to stay at the employer for a long time. Plus, you also have the option to apply for no-medical exam life insurance — which doesn’t require a physical — on your own.

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