Understanding Group Life Coverage

What is Group Life Insurance

Group life insurance is a type of life insurance in which a single contract covers an entire group of people. Typically, the policyowner is an employer or an entity such as a labor organization, and the coverage is offered to the employees or members of the group as part of a voluntary benefits package.

Reasons for buying group life insurance through work

There are major advantages to participating in a supplemental group life insurance program through your employer:

  • Convenience
  • Price
  • Acceptance

Convenience is key to those who know they need life insurance but haven’t bought it yet. Getting coverage through work can be the easiest way to protect your family.  It also can be a good deal.

Finally, people with medical conditions may qualify for a much better rate through the group policy than they could on their own. A medical exam is not required, although you might have to fill out a detailed questionnaire.  Keep in mind that if you are healthy, you will be offsetting the increased premiums costs of those who may be unhealthy.


Disadvantages of group life insurance

Most people are unlikely to stay with the same employer for their entire career.  You might be able to convert your group policy to individual life insurance if you leave, but the cost could increase significantly.  Transferring a group policy to an individual one is referred to as portability.

The cost of coverage may also increase if you stay, as premiums are often banded by age.  If your age increases to a new band, your premiums increase as well.  Continuing on cost, only the first $50,000 of coverage is provided to you tax-free from your company, the remaining will create taxable income to you if you opt in.

While your next job may not offer group life insurance, you could go out and buy an individual life insurance policy at that time. The cost of a new life insurance policy rises as you age, and you never know when you might develop a medical condition that could seriously raise your rates or even make it impossible to get coverage.

When you buy life insurance through work, you won’t find the range of policy options that you might find elsewhere. Term life insurance however, such as what’s offered through work, is generally the best option for most people. If you are looking for a more complex product like whole life or universal life, you should always consult a financial advisor.

An additional and important shortcoming of group life is that it may require you to fulfill the condition of being active at work to qualify to a claim.  This means that if the policyholder falls ill and is on leave, s/he should have reported back to work for a certain period of time to be eligible for the claim.

Finally, you most likely may not be able to buy as much coverage as you need through your work (see how much life insurance do you need).  A small multiple of income is usually not sufficient coverage, especially for those with young families.

In that case, you might want to buy regular term life insurance instead of or in addition to supplemental life.



Group life insurance coverage is an excellent and easy benefit to be taken advantage of.  Be mindful, however, that it may create a false sense of security in the coverage you actually have, compared to the coverage that you actually need.

Noah Schwartz CFP