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Roughly two-thirds of Americans rely on group life insurance from work. However, nearly half of these people either don’t understand or only somewhat understand how it works, according to an Insurance Barometer Study by LIMRA and Life Happens, both industry-funded groups.
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What Is Group Life Insurance?
Group life insurance is a single contract that provides coverage to a group of people, typically those who work for the same company. The employer owns the policy, which covers the employees. Your beneficiaries will get a payout if you pass away while covered by group insurance.
The most common group life insurance policy is provided by employers. However, some churches, professional associations, alumni groups, unions and other affiliate organizations offer group life insurance to members.
There are many different formulas used to calculate group life insurance benefits. Some of the the most common types are below.
Fixed multiple-of-earnings benefit plans
These group life insurance plans tie your death benefit amount to a multiple of your wages, such as two times your annual salary. Because the payout is linked to your salary, the level of protection rises as your income increases.
Variable multiple-of-earnings benefit plans
These group life insurance plans’ benefits are based on multiples of your earnings at certain thresholds. For example, the death benefit might be equal to your salary if you make under a certain amount, or it might be two times your annual earnings if you make over a certain amount.
Flat-dollar-amount benefit plans
These group life insurance plans pay the same amount to all employees and are a fixed dollar amount. Payouts ranging from $10,000 to $25,000 tend to be the most common.
Variable-dollar-amount benefit plans
Variable-dollar-amount plan payouts can vary based on your earnings and length of service.
What Is the Purpose of Group Life Insurance?
The purpose of group life insurance is to help provide peace of mind for employees and their families, knowing they will have some financial security if the person covered by group life insurance passes away.
Businesses offer group life insurance as a way to help attract and retain talent. For businesses, offering group life insurance can be an effective way to show employees that they’re valued and that their well-being is a priority.
For families struggling to make ends meet, group life insurance can be a lifeline. However, one thing you should know about group life insurance is that it often isn’t enough on its own. Group life insurance is also sometimes called supplemental life insurance because it’s meant to provide additional protection beyond an individual life insurance policy.
Our life insurance calculator can help you estimate how much life insurance you need.
Related: Best Life Insurance Companies
Pros and Cons of Group Life Insurance
Although group life insurance is a valuable perk, it has its pros and cons.
Advantages of group life insurance
- Group life insurance is generally less expensive than individual life insurance because your employer pays all or most of the cost.
- It’s often easier to qualify for group life insurance because there’s no medical exam required—unless you want to buy extra group life.
- Group life insurance is easy to get because you can sign up during employee onboarding or open enrollment.
- You may be able to add coverage for a spouse and/or dependent.
Disadvantages of group life insurance
- If you leave your job, you often lose coverage. The only exception is if your policy is “portable,” which means you continue to buy the group life insurance (at your own cost) after you’ve left the job.
- The death benefit of a group life insurance policy is usually lower than that of an individual policy.
- Most group life insurance policies don’t have cash value, which means you can’t borrow against it, as you can with permanent life insurance.
Summary: Group life insurance pros and cons
| Pros | Cons |
|---|---|
| Typically free or low cost | Coverage is typically tied to employment |
| No medical exam in most cases | Low death benefit amounts |
| Easy to sign up for at work | No cash value |
When to Get Group Life Insurance
If your employer offers free group life insurance, it makes sense to opt into it. It usually costs you nothing and will provide a little more financial security to your beneficiaries in the event of your death. Even if you have to pay for group life, it’s usually cheaper than an individual life insurance policy.
Beyond that, group life insurance can be a great way to get coverage if you have trouble qualifying for an individual policy due to health issues. This is because the underwriting standards are often more lenient for group policies.
Requirements for Group Life Insurance
To qualify for group life insurance, you must usually be an active employee of the company that offers the policy. Some policies may require that you work a certain number of hours per week to qualify, while others may be available to all employees regardless of status.
Premiums for Group Life Insurance
Premiums for group life insurance are often paid in full or partially by the employer. If you pay a portion it can be deducted from your paycheck. Your premium can depend on factors such as your age, salary and whether you smoke. Your employer may also offer different levels of coverage at different price points, so you can choose how much coverage you want based on your needs and budget.
The Cost of Group Life Insurance
Group life insurance costs vary depending on your employer, the life insurance company and the characteristics of the group, such as the average age of employees. The average cost of group life insurance purchased through an employer is usually quite low.
For example, here’s a look at Walmart and Amazon’s group life insurance, two of the largest companies in the U.S.
Walmart gives full-time employees company-paid life insurance equal to their annual pay, up to $50,000. Beyond this, hourly associates can pay for up to $200,000 in group life insurance, while salaried associates and drivers can pay for up to $1 million in coverage.
A 40-year-old full-time Walmart employee who does not use tobacco pays $.0295 for $1,000 or $2.95 per biweekly pay period for $100,000 in additional coverage.
These additional premiums are deducted from paychecks.
Amazon gives most part-time and full-time employees free basic life insurance equal to two times their annual salary. Employees have the option to buy additional coverage up to 10 times their base annual earnings.
For example, a 40-year-old full-time Amazon employee will pay $0.059 for every $1,000 of additional coverage. If that employee wants to purchase $100,000 of additional group life insurance, they’d have a monthly premium of $5.90.
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Group Life Insurance FAQ
Does group life insurance pay out?
Group life insurance policies pay out a death benefit if the insured dies while the policy is in effect. The death benefit can be used by beneficiaries in any way, such as covering funeral costs or paying everyday bills.
Group life insurance might also offer accelerated death benefits, which pay out a percentage of the death benefit amount while you’re alive if you’re diagnosed with a terminal illness.
What is the difference between group life insurance and life insurance?
Group life insurance is typically provided by an employer and covers all employees of the company while individual life insurance is a policy you buy for yourself. The main benefit of group life insurance is that it’s usually less expensive than individual policies. However, group life insurance usually provides only small amounts of coverage and you generally lose coverage if you leave your job.
Individual life insurance offers more flexibility—you can choose from various lengths of coverage, death benefit amounts and life insurance riders that add extra coverage. Individual life insurance is typically more expensive than group life insurance.
What are the types of group life insurance?
There are three primary types of group life insurance you may see if your employer offers this benefit.
- Basic group life insurance, also called supplemental life insurance, is typically free and employees can’t be turned down. Because of this, it makes sense to enroll in basic group life coverage if it’s available to you.
- Voluntary life insurance is the additional group life insurance you can buy for yourself if you want more than what your employer offers for free. Voluntary life insurance might require you to submit an “Evidence of Insurability” form that will need to be approved by the insurance company.
- Voluntary dependent life insurance is the additional coverage you can buy for your spouse, partner or kids through your workplace benefits.
What is the most common type of group life insurance?
The most common type of group life insurance is term life insurance. Coverage renews each year you’re employed. Your beneficiaries will receive a death benefit if you die while the group life policy is active.
Can I convert a group life policy into an individual life policy?
If you leave your employer, you may be able to convert your life insurance policy to an individual policy, as some group policies have a conversion option. But before you do that, it’s important to know that your premium after conversion may be higher than if you purchase a comparable individual life insurance policy. That is, unless you have health issues that make it difficult or expensive to qualify for your own policy.
