Employer-Provided Group Life Insurance: Advantages & Disadvantages

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An excellent company benefits package can be one of the top draws of a new job. Although employee benefits packages vary from employer to employer, you’ll generally see companies offering perks such as paid time off, retirement benefits, health insurance, and life insurance.

If you don’t have life insurance, receiving a policy as an employment benefit might seem ideal. After all, it eliminates the need to search from different providers, getting multiple quotes, filling out applications, or in most cases, taking a medical exam to qualify for coverage. In addition, you often don’t need to do much more than check a box, designate your beneficiary and sign a form to be covered by your employer’s life insurance plan.

Sounds great, right?

While employer-provided group coverage offers a great benefit that should be taken advantage of, especially if offered at no cost, most plans don’t provide the recommended amount of life insurance coverage families require.

So if you’ve been making a financial plan, it’s not a good idea to wholly count on employer-provided life insurance as your only source of life insurance coverage. Keep reading to learn more about the benefits, drawbacks, and alternatives to life insurance coverage from your job.

Quick Answers:

Basics of Employer-Provided Group Life Insurance Plans

A life insurance policy offered through your work is an employee benefit often referred to as a group life insurance plan. A group policy means that all qualifying employees of the company are provided with life insurance coverage under one group contract, managed by the employer.

Unlike individually owned life insurance policies where you have the flexibility in choosing your coverage amount, policy riders, and the contract length, a group life insurance plan generally provides the same life insurance coverage to every employee.

That means every participating employee of a group life insurance plan will have the same type of coverage, death benefit amount, and any policy features if offered. In addition, employer-provided group life insurance is usually free, and approval is often guaranteed, regardless of past or present health history. 

Signing up for a group life insurance policy is typically completed around the same time of hiring or shortly after a short tenure period of 30-90 days has been met. At that time, you would also sign up for any other benefits offered through your employer, such as health and dental insurance and retirement benefits like a company 401k plan.

Depending on who your employer has chosen to partner with to be their group life insurance provider, some plans will automatically enroll you with coverage effective on your start date with the company. Other providers may require you to fill out a few application forms and name who your beneficiary will be.

Remember, your beneficiary is the person or entity you choose that would receive the death benefit of your life insurance policy if you were to pass.

The coverage amounts for group policies are typically much lower than the coverage amounts you could purchase outside your job. The total amount of life insurance coverage you can receive under a group-provided life insurance plan will depend on your employer and the allowable limits offered by the provider.

Some of the most common group life insurance policies offer a fixed death benefit amount where all employees will receive that same coverage amount. The average death benefit for a group life insurance plan can range between $25,000 to $100,000.

A second option is salary-based plans, where the death benefit is determined by using a multiple of your annual income. That multiple is usually equal to 1-3x your annual income. Again, these amounts are generally far less than what you can receive outside of a group plan.

Many of today’s group policies also allow you to purchase supplemental coverage in addition to what the standard group plan can offer. Supplemental coverage is life insurance that is greater than the free policy offered by your employer. You’ll generally need to pay extra for this coverage. In some cases, you might need to fill out a separate application that includes medical questions and possibly a medical exam.

Other supplemental insurance options may include plans for accidental injury coverage, critical illness insurance, accidental death insurance, hospital care, and disability income benefits. These available options will depend on the types of supplemental coverage option offered by the provider your employer is working with and are likely to cost extra.

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Advantages of Employer Life Insurance Plans

Life insurance is a popular job benefit, and for a good reason. There are some great advantages to this type of employee benefit, and if your employer offers a policy, you should take advantage of the offer. Here are some significant pros offered with employer-provided group life insurance:

Price – One of the biggest draws to employer group plans is the price. Life insurance through an employer is generally free. If there is a cost, it’s typically very low and deducted straight from your paycheck. That makes employer-offered group life insurance plans a great way to get life insurance coverage without taking on a payment or having to worry about remembering to make a payment.

Convenience – Signing up for an employer-offered life insurance plan is easy. You don’t have to take the time to research policies or companies, and there are no quotes to sort through or lengthy applications to fill out. Paperwork is minimal. Plus, Human Resources staff will often be able to answer any questions you have when you sign up.

Approval – You don’t have to worry about your health conditions, hobbies, or family health history, causing your application to be denied or driving up your prices when you have an employer-offered life insurance plan. Employer plans are typically guaranteed acceptance to all employees.

So if you’ve been worried about getting coverage due to a health-related condition, employer plans can be a great choice. Plus, some group plans might also guarantee your acceptance for supplemental coverage. This means you could go beyond your employer’s standard benefit without worrying about medical questions. Keep in mind this won’t be the case with all plans but is a possibility.

All that probably makes employer-offered life insurance seem pretty appealing. The truth is, employer-offered plans are a great benefit to have. You can get coverage at absolutely no cost or risk to you. The issue isn’t employer-sponsored plans themselves. It’s using an employer-sponsored plan as your only life insurance plan that can lead to problems.

Disadvantages of Employer Life Insurance Plans

It’s not a bad idea at all to sign up for your employer’s life insurance plan, but you shouldn’t count on it as your only plan for life insurance protection. The below focuses on some of the major cons to relying on your employer life insurance as your only source of life insurance:

Coverage limits – One of the most significant limitations of employer-offered coverage is the small coverage amounts. It’s great that these small coverage amounts are often free through employers, but they’re not nearly enough to protect your family.

Most employer-offered group plans limit your coverage to one to three times your annual salary. With funeral and final medical bills often coming out of life insurance payouts, your family could be left with a minimal amount of funds left over from the death benefit.

Ideally, a life insurance benefit should provide your family with at least 10-15 years of income after your death. You don’t want to leave behind a policy that only gives a few months of financial security to your family.

Limitations on supplemental coverage – You might wonder if purchasing supplemental coverage through your employer is enough to meet your total life insurance needs. Even supplemental coverage can have limitations on the total amount you can receive.

Plus, supplemental coverage can be costly. You could end up paying a lot more for this coverage than you would if you purchased an individual plan outside of the provider your company has chosen to work with.

Coverage is tied to your job – Most people don’t stay with a single employer for their entire career. In fact, according to the Careers Advice Online, the average person will change careers 5-7 times during their working life. So when you switch jobs for any reason, you’re likely to lose the group life insurance policy.

Employer-offered group plans are tied to your job, and although they insure your life, the coverage is controlled by your employer. So, if you no longer work for that company, your policy is likely to be terminated. This can leave you with a coverage gap if you’re in between jobs or if your new employer has a waiting period before benefits begin.

Some employer-offered group plans allow you to keep the coverage if you leave your job, but this is often much more expensive than an individual plan. 

Choices are limited – When you buy a policy on your own, you can pick any company and policy type that fits your needs. With group life insurance, the choice of coverage is made for you. You won’t be able to design the policy yourself in any way.

That means you could be missing out on certain policy features, such as living benefits that offer financial protection from an unforeseen critical or chronic illness. Plus, you might not have the option to choose from certain forms of other coverage options such as whole life insurance, return of premium term insurance, or guaranteed universal life insurance.

Your benefits package could change – Even if you stay at your job for years, your policy might not be secure. Your employer could change your benefits package at any time. For example, the company could reduce the coverage amount or stop offering life insurance at all. Conversely, when you buy your own plan, you can count on it being active for the entire contract duration.

Your employment status could change – Your benefits package and your life insurance are impacted by changes to your job status. This doesn’t just mean getting laid off or resigning. Any change to your employment status could mean you no longer have life insurance. For example, If your job title ever gets reclassified as a contractor position, you could lose your coverage. 

To put things simply, an employer-offered group life insurance plan gives you a lot less control than an individually owned policy. You can’t set the coverage amounts, you can’t add policy riders, and you’re at risk of losing the policy altogether if you choose to leave the company. You don’t want to find yourself without coverage if your employment changes down the road, especially if your health has changed.

For example, let’s say you take a position with life insurance coverage as an employee benefit. You have twice the amount of your salary in base coverage, and you’ve purchased additional supplement coverage. You’re employed with the company for ten years. During this time, you’re diagnosed with a chronic medical condition.

After ten years, your position is eliminated, and you’re laid off. You’re now left without any life insurance coverage at all. Since you have a pre-existing chronic health condition, it might be tough to find an affordable policy now. This would leave your family unprotected during an already stressful time.

That might sound bleak, but life insurance is all about preparing for the unexpected. You buy life insurance so that your family is covered in a citation you hope never happens.

Just like you hope they’ll never need to use your death benefit but purchase a policy anyway, it’s a good idea to have an individual policy in addition to your employer policy. It’s a smart choice that can protect you and your family no matter what happens in the future.

Figuring Out How Much Life Insurance Coverage You Really Need

The amount of coverage offered by most employer life insurance plans isn’t enough for most people. Life insurance is meant to replace your income if you die, and one to two years worth of income doesn’t provide the financial security that most families need.

Every family and financial situation is different, but generally, you want a life insurance policy that has a death benefit amount large enough to cover:

  • Your entire mortgage
  • Any other debts you own
  • Funeral expenses
  • Medical expenses
  • Educational expenses for your children
  • Living expenses for your family for a set amount of years

That all adds up very quickly and is why most financial experts recommend that you purchase at least 10-15 times your annual income in life insurance coverage. People with large amounts of debt or families with young children often need to purchase far more coverage than what you can receive with employer-provided group life insurance.

Think of it this way, life insurance provides security for your loved ones if you pass away. If your work life insurance policy only pays out a year or two of your annual salary, it could leave your family in a tough financial situation.

Furthermore, they’ll likely need to subtract final expenses from the death benefit amount, leaving them with only a few months of income replacement. That’s not enough to provide a financial safety net for the next several years.

Employer Life Insurance Alternatives

It’s always a good idea to take out an individual policy in addition to the policy offered by your employer. It can get you the full coverage amount you need and isn’t tied to a job you might not have forever. When you’re looking for your own policy, there are a few things you should know:

Your rates will be based on your approved life insurance risk class – Your life insurance risk class is a category the life insurance company will put you in when you apply for coverage. It’s based on factors that impact your overall risk of dying, like your age, gender, health, smoking status, hobbies, and more.

This is very different from employer-based group policies that offer the same coverage to everyone as risk classifications are non-factor. Instead, your life insurance risk class is determined once the insurance company has completed underwriting and determined your eligibility for coverage.

If approved, you will be assigned a risk class that corresponds with the cost you will pay for your life insurance coverage. When considering an individually owned life insurance policy, be sure to ask about your no medical options. You may even qualify for an instant decision life insurance policy.

You may be required to take a medical exam – When applying for life insurance coverage, it will generally require a medical exam which the insurance company provides. The medical exam is a primary key factor in determining your life insurance risk class and, ultimately, eligibility for a policy.

While medical exams are a general requirement when applying for life insurance coverage, multiple insurance providers have adapted to utilizing current technology and consumer data to offer a non-medical exam applying process. Therefore, we highly recommend looking into non-medical underwriting options, especially if you’re young and healthy.

You can be denied a policy – Employer-offered policies generally come with guaranteed acceptance, but you can be turned down for an individual life insurance policy. It can be difficult to get a policy if you have serious health concerns. However, it’s not impossible, and there are options available such as guaranteed issue plans that accept all applicants, even those with serious medical conditions.

An agent can help you find a policy – You don’t have to do the work of finding and applying or the best policy alone. A life insurance agent or broker can help you find the right company and policy type for you. Plus, since agents and brokers earn money from commissions on the policies they sell, there is no charge to you. 

You have multiple options for buying a life insurance policy. The right policy type for you depends on your budget, family, and financial goals. You can read more about common policy types in the headings below.

Term Life Insurance

Term life insurance plans are the most popular type of life insurance. Term insurance allows you to take out large amounts of coverage without paying a ridiculous price. When you apply for a term policy, your premium payment is based on your life insurance risk class, coverage amount, and contract length.

Term insurance policies will be the most affordable form of life insurance and perfect for families with a high need for financial protection. Contract lengths range from 10, 15, 20, 25, or 30 year durations. A few providers have even begun to offer contract lengths as long as 35 and 40-year durations.

Premiums are a fixed price for the entire duration of the contract length chosen. You can add riders that can bring in extra coverage for your children and spouse, or receive living benefits that will cover you in case of illness or injury.

Since term policies don’t build cash value and only provide temporary life insurance coverage for a set number of years, it is one reason why coverage is affordable. So you’ll get full coverage at a low price, making term policies the best choice for many families.

You can also get term policies both with and without a medical exam. Traditional term policies require a medical exam and lengthy application process, but newer no exam plans are also available.

As the name implies, no exam term policies allow you to get coverage without taking an exam. You can get coverage quickly and easily without needing to leave your home.

Whole Life Insurance

Whole life insurance policies provide life insurance protection for your entire life, no matter how long that is. Your premiums will also stay the same price too. The largest and most appealing benefit of whole life policies is that they can build guaranteed cash value.

The cash value of whole life insurance grows each time you make a premium payment, with a small portion portioned off to the cash account where it will earn a fixed interest and further grow.

The primary benefit of having a life insurance policy that has the ability to earn a cash value growth is that you can borrow against the account’s cash value without tax penalties. This makes whole life policies an appealing option if you want a savings account along with a life insurance policy.

On the downside, whole life policies are much more expensive than term life. Since the policy will last your entire life and since the account builds cash value, you’ll pay more for it.

In many cases, the cost of a whole life insurance policy can be upwards of 8x or greater than the cost of a term insurance policy with the same death benefit amount.

Guaranteed Universal Life Insurance

If you want coverage that will last your entire life but don’t want to pay the high price of whole life insurance, there is another option. Guaranteed universal life insurance is that middle ground between term insurance and whole life insurance. These policies last your entire life but build little to no cash value at all.

The cost of a guaranteed universal life insurance plan is a little greater than term life insurance but far less expensive than a whole life insurance policy.

If your not concerned about your life insurance coverage being able to earn cash growth but would like a plan that can provide lifetime protection, we highly recommend looking into a guaranteed universal life insurance plan. These plans are an excellent alternative to both term life and whole life insurance plans.

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Frequently Asked Questions About Employer Life Insurance Coverage

There’s a lot to know about employer life insurance coverage, so we’ve answered a few more common questions most people want to know listed below. If we missed answering your specific question, kindly let us know, and we will get it added below.

How does group life insurance work?

Group life insurance works the same as a traditionally owned life insurance policy. The main difference is the structure of how the actual contract is set up. Group coverage is designed to provide life insurance protection to multiple employees under one contract that is managed by the employer.

Each employee is insured with their own death benefit amount and is covered throughout the duration of their employment with the company. If the employee passes away while employed, the group life insurance policy will pay out a death benefit to a beneficiary that the employee had named.

How much does group life insurance cost?

The cost of a group life insurance policy will depend on a few potential factors. For example, some employers may offer group life insurance as an employee benefit paid at the company’s cost, and the employee will receive life insurance coverage at no cost. This basically the same as free life insurance, and you should not pass up on this offer if given.

Some companies may offer a group life insurance option but at the cost of the employees that choose to participate in the group plan. For group life insurance plans required to be paid by the employee, the cost can often be deducted straight from the paycheck. This is referred to as a payroll deduction option allotment and reduces the burden of the employee having to remember to make any payment for their life insurance coverage.

If your company offers a group life insurance plan that you are required to pay for, the cost is often relatively affordable as the death benefit amounts are rather small. Some employers may even choose to split the cost. As a result, you can generally expect a couple of dollars to come out of your paycheck each month to cover the cost of life insurance.

If your group life insurance plan requires you to pay all or even a portion of the cost, it will generally be voluntary because you wish to enroll in the group life insurance plans.

How much life insurance can you get through work?

The total amount of life insurance you can receive from an employer-provided group life insurance plan will depend on both your employer and the life insurance provider your employer has chosen to supply the life insurance coverage to the group.

Most group life insurance plans are offered in a flat death benefit option where every employee receives the same death benefit amount or a salary-based option.

A salary-based option is a death benefit that is based on a multiple of your annual income. Commonly, the multiplied number would be a number between 1-3, but again, that specific number will depend on what your employer chooses.

Keep in mind, most group life insurance plans are smaller amounts of coverage because they accept all employees of the company regardless of their health.

Therefore, for the insurance company to reduce the risk of paying out large sums of death benefit money over the course of each employee’s time with the company, the insurance provider will often cap the total amount of death benefit when it comes to group insurance plans.

What type of life insurance are group insurance plans?

Term life insurance is the most common form of group life insurance. These plans are the most affordable and are renewable each year. However, the plans will typically terminate once an employee retires or has left the company.

Other group life insurance plans can include guaranteed universal life insurance, but they tend to be more expensive because they are permanent policies. As a result, most employers choose group term life insurance as it is the most cost-effective option.

Does group insurance require a medical exam to apply?

Because group life insurance plans limit the total amount of death benefit to smaller coverage amounts, health questions and medical exams are typically not required, and approval is often guaranteed.

For policies that are greater than what the group insurance will allow, such as applying for additional supplemental coverage, full underwriting is likely to be required.

If full underwriting is required, you will need to answer health questions and potentially be requested to take a medical exam to prove insurability.

What options are there if my employer doesn’t offer a group life insurance plan?

If your employer does not offer a group life insurance plan, it can be a great opportunity to look into owning your own life insurance policy. Traditional life insurance plans will have fewer restrictions than group life insurance plans. They can offer many more additional features and benefits that are not commonly offered with group life insurance policies.

For example, many plans are available without the need for a medical exam with the potential of receiving a decision for same-day approval. Coverage amounts will be much higher than what you can receive with a group insurance plan, and you’ll have a wide variety of riders to choose from.

Should I purchase supplemental coverage through my employer if offered?

While it’s always a good idea to take the free coverage offered by your employer, supplemental coverage is a more difficult decision. First, it’s important to look at how much coverage you’ll be able to get through your employer and what it will cost.

You can then get quotes to compare the price of that much coverage against rates from other companies. You’ll likely be able to find cheaper coverage going for an individual plan.

However, if you have health conditions, this might not be the case. Employer-offered insurance plans with guaranteed supplement coverage can be a good deal for people whose health conditions might drive up their rates with other plans.

Keep in mind that your supplemental coverage will also be tied to your job.

Should I use an employer-offered life insurance plan when I'm young?

An employer-offered plan might sound like a great option when you’re young, especially if you’re single and don’t have kids. While it’s true you might not need much coverage at this point in your life, it’s still a good idea to look into an individual plan.

That’s because the younger and healthier you are when you apply for life insurance, the lower your rates will be. So if you’re thinking about life insurance, now might be a great time to apply. You’ll get the lowest rates available, and you’ll be able to keep your policy as your needs change.

What happens to my employer life insurance plan if I start to work part-time?

It depends on your employer. Some employers offer life insurance to part-time employees, but many don’t. So if you transition from full-time to part-time work for any reason, you might lose your policy. This is another reason why it’s always a good idea to have an individual policy in addition to your employer policy.

What happens to my life insurance if I quit my job?

Because most group life insurance plans are purchased as renewable term insurance, leaving a company will often terminate coverage.

Some group term life insurance plans may offer what is referred to as a conversion option that allows you to convert your group term insurance into your own permanent life insurance plan.

Choosing to convert a term insurance policy into a permanent policy can be costly. In most cases, if you haven’t experienced any significant changes in your health, it may make more sense to look into owning your own individually owned term or permanent life insurance plan.

What happens to my employer's life insurance when I retire?

You’ll likely lose your employer coverage when you retire. As mentioned, employer insurance is always tied to your job. So even retirement can lead to a loss of coverage.

This can be an issue because it’s harder to get affordable coverage when you’re older, so if you’ve put off getting an individual plan, you might not be able to get the coverage you want after retirement.

However, many people find they need less coverage after retirement because their expenses have gone down. In this case, you could take out a small and affordable policy. It’s a good idea to know what will happen to your policy when you retire and have a plan in place.

Closing Thoughts

Life insurance from your employer is a great benefit that you should take advantage of. It’s an easy way to get a policy, and it’s often completely free to you.

However, you shouldn’t fully rely on it as your only source of life insurance coverage. Coverage amounts from employer-offered policies aren’t enough to offer financial security to most families. Plus, the coverage will be tied to your job and can be lost if your circumstances change.

It’s a good idea to have your own policy. Buying your own life insurance policy might be more affordable than you think. If you’re considering a policy, we can help you find a great one. At No Medical Exam Quotes, we can show you quotes from top no exam life insurance companies.

When you choose one of these highly-ranked companies, you’ll get the coverage you need without a medical exam. Fill out our quick form to get started today.

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Jeffrey Manola - Life Insurance Expert

Jeffrey Manola - Life Insurance Expert

Jeffrey Manola is the founder of No Medical Exam Quotes, an online insurance broker with a strong focus on helping people shop for the perfect life insurance policy. Jeffrey is both a licensed life insurance expert and content creator for the website. Before becoming a licensed life insurance agent, he served in the United States Marine Corps. He transitioned from serving his country to helping families find affordable life insurance coverage since 2009. No Medical Exam Quotes is licensed to offer life insurance coverage in all 50 U.S. States.

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