Group Life Insurance is often not enough

People often ask me if the group life insurance they can get from their employer is enough to protect their families’ needs. For many people group life insurance might be a good solution or at least a good starting point to supplement your families’ plan of protection. In this post I will go into some of the details of group life insurance policies/certificates and why they are a great benefit for employees. I will also look at some of the limitations of group life insurance and why you need to look at buying your own policy.

I will also talk about individual life insurance policies here. They are really the other option and are typically a good way to supplemental the group coverage from your employer.

Buying Group Life Insurance

Group life insurance is a benefit that many employers make part of their benefits package for their employees. This benefit can be purchased as part of a package of benefits or as a stand-alone benefit. Usually you will be eligible for this benefit when the plan is started or when an employee first joins the employer There is often a base benefit that all employees will receive. Plans will sometimes offer an annual enrollment period.

There is usually also an option to buy up additional coverage for you and possible your family on a guaranteed basis. This will allow you to buy a limited amount of additional coverage up to a certain limit. There are usually no or limited questions about your health. This can be very beneficial if you have health issues and cannot qualify for an individual policy.

The issue of everyone being able to buy up additional amounts can be a double edge sword. This is great if you aren’t healthy, have a chronic disease or are a smoker. These are conditions that traditional Life Insurance companies don’t like because you are much more likely to die at a younger age. The limited questions being asked of employees enrolling in the group life insurance plans makes the easy to qualify for. For some people that might not otherwise be able to get coverage, this is a great option.

Can I take my Group Life Insurance policy with me if I leave?

This is what we call portability. One problem with Group Life Insurance is that you do not own your policy. You are issued a group policy or certificate. Depending on what is stated in the master plan contract, you may have options.

It is possible to take your policy with you in some instances, but it can cost you a lot of money. The first permanent product I sold when I started my career was a conversion from a Group policy. This individual had an additional $213,000 group life insurance certificate and was leaving the company he was with. He was going to lose the coverage or had to convert the policy to a permanent policy. There were a few problems with this…

  • He had to convert to a particular policy type, which ended up being very expensive
  • He only had $213K of coverage, which was less than he wanted
  • He got the standard rate which carried over from the group policy, so this added to the cost

In the end, this was a good deal for him, because he had a terminal disease and could no longer work and was going to lose the group life insurance policy if he could not convert it. Fortunately, he had the money to pay the high premium because most people would not have been able to pay that amount for long. In the end he would pass away knowing that his family would have some financial resources.

Can Group Life Insurance prices increase?

The prices for Group Life Insurance are not fixed and can go up depending on the experience of the group. If the group has some big losses, all the people that participate in the group life insurance coverage may face rate increases.
The prices for group life insurance may also be age banded. So if you start at age 30-34, when you hit ages 35, 40, 45 etc, you might see your rates increase, as the following table illustrates.

Age Rate per $1,000
<25 $0.07
25-34 $0.09
35-39 $o.10
40-44 $0.12
45-49 $0.16
50-54 $0.24
55-64 $o.58
65-70 $1.31

Group Life Insurance: Is it worth it?

Group Life Insurance is a very good opportunity for people that could not get coverage on their own to protect their families. It can cost a lot as you age and is usually only going to be an option while you are working at a particular company.

Group Life Insurance can also be a basic amount of coverage that employers often provide to their employees. Being that group life insurance is often given at no cost to employees, it is a great base level benefit.

If you have been turned down or you know that you can’t qualify for an individual life insurance policy, get as much group life insurance as you need or they will give you. If you have any questions about your being healthy enough to qualify for an individual policy, then talk to me and we can see if a group life insurance or an individual policy is the best for you. Most people can get their own Life Insurance policy; people just need to talk to an independent agent that can find the right policy for them.

If you are healthy and want to protect your family and loved ones, then look into getting an individual life insurance policy. You can get more coverage, at a better rate and


will own the policy. In looking at the prices and the options available to people, it can save you money and stress over relying on just group life insurance.

Final thoughts on Group Life Insurance

I do not offer tax advice, but generally speaking, if you pay for your group life insurance with pre-tax dollars the benefit will be taxed. This is a huge issue for some people. I have a friend who recently received a small check from a life insurance settlement and then she received a 1099 for the payment at the end of the year. She thought it would be income tax free, so I told her to check with the company. Sure enough, it was a benefit that his union paid for, so since the group life insurance was not paid for by the insured, it was fully taxable.

You can often not get enough group life insurance to protect your family adequately. I hear guys joke about “I don’t want to leave them rich”, but do you want to leave them poor and destitute? Group Life Insurance will usually be based on multiples of your salary. This is never going to be enough to allow your kids to stay in their house or go to the schools you would want them to. You need to talk to someone that can help you look at what you need and want for your family.

I hope you found this interesting and let me know what questions you have,

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