Pros and Cons of Group Life Insurance Through Work

There are three main advantages to buying supplemental group life insurance through your employer: convenience, price and acceptance.
Insurance, Life Insurance
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Maybe you’ve been meaning to buy life insurance but just haven’t gotten around to it. 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.

Many employers offer free life insurance as a benefit, known as group life. All you have to do is sign up, and sometimes enrollment is automatic.

Many people opt to buy more insurance, known as supplemental life insurance, through such plans. In fact, 44% of all life insurance policies in force in 2015 were through groups, including workplaces, churches and other associations, according to the American Council of Life Insurers.

Is buying group life insurance through your work a good idea? Here is a rundown of the advantages and disadvantages.

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Basic vs. supplemental group life

Employers often, but not always, provide a small amount of life insurance coverage for free. That’s basic group life. Typical coverage amounts are $25,000, $50,000 or an employee’s annual salary, rounded to the nearest $1,000. Because this is free, and coverage is generally guaranteed, there is no reason not to accept it.

Employers often, but not always, provide a small amount of life insurance coverage for free.

Remember to fill out any forms required by the deadline provided. You will be asked to name a beneficiary or beneficiaries. Otherwise any proceeds will go to your spouse or other relatives as determined by law.

You may also have the option to buy supplemental group life insurance. These plans generally allow workers to buy extra coverage — sometimes up to three or four times an employee’s annual salary. The higher amounts often require filling out an “evidence of insurability” health questionnaire.

A history of serious disease could lead the insurance company to require you to allow a review of your medical records, submit to a physical exam, allow medical tests, and ultimately reject coverage.

Reasons for buying group life insurance through work

There are three main advantages to buying supplemental group life insurance through your employer: convenience, price and acceptance.

Convenience is key to those who know they need life insurance but haven’t bought it yet. Getting coverage through work can be the easiest way to protect your family.

It also can be a good deal, sometimes offering rates you can’t beat by shopping around.

Finally, people with serious medical conditions may qualify for a much better rate through the group policy than they could get on their own. A medical exam is not required, although you might have to fill out a detailed questionnaire.

Disadvantages of group life insurance

Most people are unlikely to stay with the same employer for their entire career, which brings up the first major disadvantage of tying your life insurance to your job. You might be able to convert your group policy to individual life insurance if you leave, but the cost could go up significantly.

Your next job might not offer group life insurance. You could go out and buy an individual life insurance policy, in that case. But the cost of life insurance rises as you age, and you never know when you might develop a medical condition that could seriously raise your rates or even make it impossible to get coverage.

When you buy life insurance through work, you won’t find the range of policy options that you might find elsewhere. But term life insurance such as what’s offered through work is generally the best option for most people. If you are looking for a more complex product like whole life or universal life, you should consult a financial advisor.

Finally, you might not be able to buy as much coverage as you need through your work. In that case, you might want to buy regular term life insurance instead of or in addition to supplemental life.

How to decide

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 shop around without entering any personally identifying information.

You might find you can get a comparable deal on your own, in which case it’s not worthwhile to buy life insurance through your work. Even if the cost of an individual policy is slightly higher, it’s still probably a better bet because of its portability.

If you have substantial life insurance needs, such as many dependents, you might consider buying an individual policy and supplementing it with life insurance through work.

But if you fear you might not qualify for a good rate as an individual, perhaps due to a medical condition, group life insurance through your work is a good idea. Just remember the limitations, especially if you don’t expect to stay at the employer for a long time.