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How to evaluate group life insurance coverage offered through work

Learn about the pros and cons of your employer’s group life insurance policy to know if this common workplace benefit works for you.

Group life insurance is one of the most common workplace benefits offered by employers. According to a 2019 report by the Society for Human Resource Management, 82% of employers provide group life insurance benefits.

If this type of workplace benefit is so commonplace, should you be taking advantage of it if you aren’t already? Most Americans are not. A 2019 study by LIMRA and Life Happens found that just 29% of adults have a group life insurance policy.

With open enrollment season approaching, you’ll have an opportunity to decide whether you want group life insurance if your employer offers this benefit. Before you sign up, here’s what you need to know about this benefit to help you determine whether it’s right for you.

What is group life insurance?

If your employer offers life insurance as a workplace benefit, it most likely is a group life policy. As the name suggests, it covers a group of people – in this case, the employees at the company where your work — rather than an individual.

The employer owns the group policy and decides the amount of coverage that is offered. “It will be a predetermined set amount that is usually around one to three times your salary,” says David Hessel, a financial planner with Global View Capital Advisors.

Typically, there’s no medical exam to get group life insurance as there is with an individual life insurance policy, and coverage is often guaranteed issue, Hessel says. As such, the premium is the same for everyone in the group.

The benefits of group life insurance

One of the main benefits of group life insurance is the ease of getting a policy, says R.J. Weiss, a CERTIFIED FINANCIAL PLANNER™ professional and founder of the personal finance website The Ways to Wealth. Many companies automatically enroll employees in their group life insurance plans upon hiring them, he says.

Plus, people with pre-existing conditions that make it difficult to get individual life insurance often qualify for a group life policy because there’s no medical underwriting and coverage is usually guaranteed.

The other big benefit of a group life insurance policy is the cost, Weiss says. “Many employers pay 100% of the cost of the insurance up to a certain amount of coverage,” he says. Even if an employer doesn’t cover the cost, the premium for group life coverage can be lower than for individual coverage if you aren’t in good health or have other risk factors, he says.

When applying for an individual term life insurance policy, you usually must answer questions about your health and perhaps undergo a medical exam to determine how much of a risk you are to the insurer. (Note: It’s very important to be honest when completing the application. The issuance of the policy or payment of benefits may depend upon the answers given in the application and their truthfulness.) The higher your risk, the higher your insurance rate will be with an individual policy.

The drawbacks of group life insurance

Although the cost of a group life insurance policy can be cheaper for people with health problems, it’s not always the best deal for people in good health, Weiss says. Healthy individuals usually pay higher premiums for group life policies than for an individual policy because they’re being lumped in with people whose health prevents them from qualifying for the best life insurance rates.

That’s not the only drawback of life insurance offered through an employer. “While many employers offer coverage at no cost, the amount provided is typically much smaller than the actual needs of the employee,” Weiss says. “So, if you only relied on group life insurance, you’ll likely underinsured.”

On top of that, you likely won’t be able to keep your coverage if you leave your job. “While some insurers do offer an option to convert your plan to an individual policy, many plans do not,” Weiss says. Then you could end up without life insurance coverage to protect your loved ones.

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How to evaluate a group life policy

Before evaluating your employer’s group life insurance plan, you need to know what your own life insurance needs are, Weiss says. That means knowing how much coverage you need and the type of life insurance that is best for you. “Understanding your own needs gives you the ability to properly assess your group’s policy,” Weiss says.

One rule of thumb when getting life insurance is to have a policy with a benefit amount equal to 10 times your annual pre-tax income. This can be a starting point. But Hessel says you should consider these four factors to get a better idea of how much coverage you need:

Death expense

This is the amount you expect your burial and funeral to cost. Be sure to include this amount when figuring how much life insurance coverage you may need.

Income replacement

Ask yourself how much would you want your family to receive in a lump sum to replace your income if you were to pass away. “For example: If you make $100,000 annually and you would like to give your family 10 years of less financial worry, then the total to put here is $1 million,” Hessel says.

Mortgage

This is the amount left on your current mortgage..

Education

The best questions to ask here is if you would like to pay for some or all your child’s college expense. If so, look up the cost of schools your child might attend to get an estimate for the total amount for four years of education multiplied by the number of children you have.

“The total of these four sections will give you a good estimate for the total amount of life insurance coverage that you need,” Hessel says. Then you’ll know whether the coverage offered by your employer’s group plan is enough for you. Use a free online calculator that takes all of these factors – and more – into consideration to estimate the amount of life insurance coverage you need.

Also consider the type of life insurance your employer is offering. If it’s a term life insurance policy, you should determine whether the term – that is, the length – of the policy is long enough for your needs. The younger you are, the longer the term you likely need. So if you’re in your 20s and the group life insurance policy at your work has a term of only 10 years, that policy would only be in effect into your 30s – which likely won’t be a long enough term for your needs.

You also should consider the cost of the group plan. If you have to pay the premium, compare that rate with the rate you could get with an individual term life insurance policy to determine if it’s a good deal. “Often individual coverage is less expensive than most think,” Hessel says.

Finally, understand whether the group policy can be converted to an individual life insurance policy if you left your job. If it can’t, you might have trouble getting individual coverage at an affordable rate depending on your age and health when you leave your job.

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Why you may need individual life insurance coverage

If your employer offers free group life insurance coverage, you might want to think twice before  turning down this benefit, Weiss says.

Butyou may want to consider supplementing with an individual term life insurance policy even if you have coverage at work. Why? You don’t want to risk being underinsured with a group life insurance policy if the benefit amount is too small to protect your family.

Nor do you want your family’s protection to be solely tied to your employment with a company, Hessel says. “If you leave your employer, it’s unlikely that these needs for your family will go away like your life insurance coverage will.”

If this happens when you’re older, you might not be able to get a new policy. The older you are, the greater your risk of having a medical issue that will make you uninsurable, Hessel says.

Hessel notes that individual coverage is a good way to avoid being underprotected.

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Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She also is an award-winning journalist who has been writing about personal finance for more than 17 years. You can learn more about her at CameronHuddleston.com. Opinions are those of the author or the person interviewed.

Haven Life Insurance Agency offers this as educational information only. Haven Life does not endorse the companies, products, services and/or strategies discussed here. The information provided is not written or intended as specific tax or legal advice. Haven Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

Cameron Huddleston

About Cameron Huddleston

Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Forbes, MSN, Yahoo and many more print and online publications. U.S. News & World Report named Cameron one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named me one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, MSNBC, CNN and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR and more than 30 podcasts. Cameron has also been interviewed and quoted as an expert in The New York Times, Chicago Tribune, BBC.com, MarketWatch and more.

Read more by Cameron Huddleston

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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