Life insurance

Group life insurance vs. individual life insurance

Getting group life insurance through your employer can seem like a no-brainer. You don’t have to shop for a policy yourself, you typically won’t have to undergo a medical exam, and coverage is often free (or close to it).

By that logic, group life policies are an easy, affordable way to get the coverage you need, right? Well, the answer is… not exactly. Group life policies are a nice perk of employment but can lull you into a false sense of security. You may end up with too little coverage, only to lose it when you leave your job.

So, is group life insurance coverage really enough? Or should you protect your loved ones by buying an individual life insurance policy?

We’ll walk you through the pros and cons of both types of life insurance so that you can make the best financial decision for you and your family.


What is group life insurance?

Group life insurance is a type of term life policy that covers… well, a group. You only need to be a member of that group to qualify for coverage — no medical exam or extra fuss required. Premium rates are the same for everyone covered by the policy.

Some employers offer group life insurance as part of their benefits package, but you can also join group policies through unions or organizations such as AARP. With employer-sponsored insurance, you’ll typically sign up during an open enrollment period or when you start a new job.

Like other term life policies, group life only covers you for a certain period, usually until you leave your employer or organization. So, if you join a policy through work but then switch jobs, get fired, or retire, you lose your coverage.

Group policies also cap the amount of coverage. If you get life insurance through work, your coverage amount could get set in a couple of different ways:

  1. Everyone at your company qualifies for the same low benefit amount — typically between $10,000 to $50,000.
  2. Your employer takes your annual salary and multiplies it by one or two. So, if you make $45,000 a year, you could get up to $90,000 in coverage.

In other words, your beneficiaries might receive enough to cover funeral and other end-of-life expenses if you die before leaving the job. But that death benefit won’t replace your lost income for more than a year or two, or provide enough to send your kids to college.


What is individual life insurance?

In contrast to group life insurance, individual life insurance is purchased by only one person, and covers that same person. When you apply, you complete a questionnaire about yourself, your lifestyle, and your medical history. Depending on the insurer and policy, you may also need a medical exam.

Insurers use this information to assess how risky you are to insure, and they use this information to set your premiums and determine how much coverage you qualify for. For example, you may only get $50,000 in life coverage through work, but be eligible for a few million dollars with an individual policy.

There are two main types of life insurance coverage: whole life policies and term life policies. They have different features, so you’ll want to pick the policy type that best suits your financial situation.

Whole life insurance policies

Whole life insurance, which is a form of permanent insurance (as is universal life), provides lifelong coverage, so your death benefit is guaranteed as long as you pay your premiums. And both have cash value components that build over time, which allow you to:

  • Take out a loan against the policy
  • Withdraw money
  • Use the accumulated cash value to pay your life insurance premiums
  • Surrender your policy for its cash value

The tradeoff permanent policies and cash value:

  • Any money you withdraw or borrow reduces your death benefit, so your loved ones receive less
  • Surrendering your policy means canceling it, which eliminates your death benefit
  • The cash value can take a long time to accrue, so you may wait decades to access any significant amount
  • Permanent policies are expensive. You’ll pay far more in premiums than you would for an equivalent term life policy
  • Your financial situation changes over time. So in the future, you may not need that lifelong coverage, but you’ll pay more for it in the meantime

On average, a 30-year-old man in excellent health will pay about $4,652 annually for a whole life insurance policy worth $500,000.

For many, term life ends up being the better and more affordable option for coverage.

Term life insurance policies

With term life insurance, you get coverage for a predetermined period, known as the term of your policy. Most terms fall between one and 30 years, with five-year increments being the most common.

Term policies are a more straightforward form of life insurance than whole life policies. They have no cash value or extra moving parts, so all you have to keep track of is your premium payments and term length. If you make those payments and die during your term, your insurer will pay out your death benefit.

If your term expires, you no longer owe premiums, and, better yet, you’re still alive. (You may also have the chance to renew your policy, or buy a new one, albeit with a higher premium.)

You can choose a term length that fits your current financial situation. For example:

  • If you have young children, you can take out a 20-year term policy with the amount of coverage to cover the time when they live at home. You can feel secure knowing that, no matter what, your partner or spouse will have the money they need to raise the kids and send them to college.
  • Some debts, like personal loans, only take a few years to pay off, but would still be a burden to your loved ones if you died. So you could take out a 10-year term policy to cover the cost.
  • If you have a mortgage, you can take out a 30-year term policy for the years until the mortgage is paid off.

Remember when we mentioned that 30-year-old man in excellent health? That same guy would pay $19.04 per month for a 20-year Haven Term policy worth $500,000 — about $228.50 per year, or $4,423 less than what he’d pay for an equivalent whole life insurance policy. Over the life of a policy, that adds up to nearly $90,000, making term life insurance a whole lot more affordable for most people.

Who needs what?

Still on the fence about whether you need group life or individual coverage? Then ask yourself the following questions:

  • Do you have large co-signed debts, like student loans or a mortgage? How much money would it take to pay them off?
  • Do you have a spouse or partner? Would you like your death benefit to cover their future needs or retirement?
  • Do you have children who still live at home? What would your spouse (or any other responsible party) need to raise them and send them to college?
  • Are you the primary breadwinner? What would it take to replace your lost income?
  • Do you need to provide for a special needs child or an aging parent? How costly will their future care be?

You probably need additional coverage if you answered yes to any of the above. Group life might be enough if you’re young, single, and have no debts or dependents — at least until your circumstances change.

The costs of life (and death) add up quickly. Many people will need a life insurance policy worth five to 10 times their annual salary to cover those costs. That’s far more than you’ll get with a group life policy.

To be clear, group life insurance coverage can be important in providing for your loved ones. And it can offer affordable, guaranteed coverage for older workers or those with preexisting conditions. It’s just usually not enough on its own.

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