What is Group Life Insurance?
Almost every week I get asked the same question from clients, “What is Group Life Insurance and should I compare my work policy to private individual life insurance?”
A nice benefit that employers usually offer is group life insurance, coverage is usually free or supplemented, so there’s no reason not to participate, right? Well, sort of, what did our parents always teach us? If something is too good to be true, then it probably is. While there are plenty of reasons to take advantage of an employer sponsored life insurance plan, especially if it’s free, the main concern I have is the false sense of long term security that might blind the consumer from supplementing with private life insurance. Here are a few examples of the benefits and drawbacks of group life insurance.
1. Ownership of Policy- An employer owns the group policy; the employee is issued a certificate of insurability through a group sponsored life insurance plan. The employer owns, controls, and pays for the life insurance and can replace, change, or cancel the policy because they own it. I am not suggesting your employer would cancel your insurance. But relying on a policy without control is a true problem as your employer doesn’t have the same concern or interest for your kids or family; therefore you should own an individual life insurance policy as part of any long term plan.
2. False Sense of Security- Life insurance is a privilege not a right. The older we get the less healthy we become and the closer to our demise we get, so therefore, life insurance becomes harder to qualify for and more expensive. I have heard one too many stories of a spouse of a client who always relied on group life insurance, gets laid off, and tries to buy private coverage, only to be declined for health reasons.
3. Costs- For healthy employees, group life insurance is not less expensive. The prices on a group plan are also not fixed, so you can expect the cost of insurance to go up annually or at certain ages. A simple comparison to a level 10 or 20 yr term will buy longer guaranteed pricing than group life benefits at far less cost.
4. Compare and Shop- The best advice I give to a consumer is the famous saying, nothing ventured nothing gained. There’s no cost to learning about your options as a consumer. What if your research save you a few hundred dollars a year over the next decade, is that worth the effort? An Independent life insurance broker can help. The broker can shop multiple carriers and help you find the best pricing. A broker is free to the consumer as the carriers compensate a broker, not the insured. So my advice compare your group life insurance to individual coverage ASAP.
5. Portability- If you leave your employer the group life insurance is not portable, (meaning you can’t take it with you) this could be a problem if you now have health issues and your next employer does not offer you a life insurance option. When you qualify for and buy private life insurance policy, you are guaranteed coverage for the length of that policy term. But, if you rely on your employer’s group life insurance, usually the coverage stops when you leave the job. It’s almost like a 1-year term policy. The concern should be; if you leave your job because you are seriously ill or disabled, then you might end up both uncovered and unable to find new insurance.
6. Ease to qualify- A great reason to have life insurance through your employer instead of private is if you are not very healthy. Some things can cause you to be un-insurable could be your health conditions, diseases, build, and also even your age. So still research and compare group life insurance to private but if you are un-insurable then you might not qualify for group life insurance in which case graded benefit life insurance would be a last option.
Group life insurance is purchased or supplemented by an employer for their employees. An employer while providing a wonderful benefit can’t consider each and every employee or their beneficiary when providing coverage. It’s in our best interests as a consumer to understand why we want life insurance and take the time to compare the difference between private life insurance and group life insurance.