Life Insurance

Group Life Insurance vs. Individual Life Insurance Policy


Introduction

Group life insurance

Stepping into the insurance industry in my late 20s, I frequently encountered a common question from my peers: “My workplace offers life insurance; should I still purchase my own policy?”

Now, you might anticipate my response. It was always, “well, it depends.” I would delve into the various factors they should weigh, and if our conversation delved deep enough, my ultimate recommendation often leaned towards, “yes, you should.”

If you find yourself pondering the same question, you’re in the right place. In this post, I’ll guide you through essential considerations, allowing you to revisit your decision-making process. But before we dive into the details, let’s start with a comprehensive overview of group life insurance.


What is Group Life Insurance?

Group life insurance stands as a benefit offered by sizable entities like employers, unions, or associations. In contrast to personal life insurance policies, group life insurance policies skip the requirement for a medical exam. They are often more budget-friendly than individual life policies and, in certain instances, may be provided as a complimentary company benefit.

Group term life insurance

The tradeoff for these advantages is that the death benefit amount is typically more modest compared to the amounts available from a personal life policy. Additionally, it’s a “non-transferable” policy, implying that you can’t carry it with you if you choose to leave your company.



Group policies are classified as “temporary” or term policies because they only apply for that benefit year. Employees can choose to re-enroll during open enrollment.

Some group policies may have features where the death benefit amount is higher if the death is considered “accidental,” similar to the “accidental death benefit rider” that personal policies offer. 

Some group policies may also provide the option to purchase coverage for household members such as the employee’s spouse or child. 


Difference Between Group Life Insurance and Personal Life Insurance Policies

Group Life Insurance shares the same purpose as personal life insurance policies. They’re both Intended to provide the insured’s beneficiaries with financial support upon their passing.

The difference is that they’re less than individual life insurance policies, which is their main advantage over individual policies.

The disadvantage is that the policy is only as good as your relationship with the entity providing the group benefit. If you sever your relationship with that entity, you’ve also forfeited the group policy.

Like any other insurance policy, consumers should start by considering their insurable needs and the amount for sufficient coverage.

Group Life Insurance vs. Personal Life Insurance Policies

If you find any need for life insurance, having a personal life insurance policy is often the more beneficial one to have in place. Here’s why:

  1. Personal Life Insurance Policies stay with you: Employers change. Your individual life insurance policy stays with you. As mentioned in my previous post, the younger you are, the more likely it is for a lower premium. See the example below:


Suppose you decided to switch employers after spending ten years at your previous one, and you learn that your new employer does not offer group life insurance.

Well, guess what? You’re now ten years older, meaning your premium will be more expensive than what you could have locked in 10 years ago.



  1. Policy amounts: While group life insurance offers more affordable premium payments, given that the owning entity contributes to a portion of the premiums, the associated policy amounts usually cover only a fraction of common life insurance needs.
  1. You have authority over the policy: Unlike group life insurance, personal life insurance policies allow policy owners to make changes to the policy as needed.
  1. Options to customize your policy to your needs: Individual life insurance policies can be customized with riders to suit your life insurance needs better. Group policies, on the other hand, can only be customized by selecting a benefit amount and naming your beneficiaries.

Pros and Cons of Group Life Insurance

The Pros

  • Inexpensive or sometimes even free.
  • No medical exams.
  • The potential option to add coverage for your spouse or child(ren) with no medical exams.
  • Possible accidental death benefit.
Group term life
Pros and Cons of Group Life Insurance

The Cons

  • Group policies are not transferrable. It ends when your relationship with the providing entity ends, whether due to termination, quitting, or retirement.
  • Since no medical exam is required, the policy amounts are often limited in comparison to personal life insurance policies.
  • The benefit options and terms are selected by the entity that purchased the group policy. The insured (member or employee) has no control over what’s offered.
  • Waiting periods can sometimes apply.


Some group life insurance policies take effect after a certain period of time (such as the “probationary period” for new employees ).




Takeaway

At the end of the day, entities will do their best to select a group plan that is suitable for most. In other words, they strive to find a “one size fits all” type of policy.

Term insurance policy

I’m sure you’re aware that the “blanket approach” isn’t efficient for most, as everyone has different needs, which is why I steer clear of that approach regarding insurance and investments.

Instead, I’ve always found it to be more efficient when the owner of a policy or investment account is the one that has complete control. 

Disclaimer: The opinions expressed in this blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security, investment, or insurance product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.


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