Some employers offer life insurance to their employees through the form of group coverage. It can be a good part of your benefits package, but you might be wondering whether it's as useful for you in the long run as paying for your own coverage. The two most important aspects of any life insurance policy are cost and coverage. How much are you really insured for, and how much do you have to pay for that protection?
Group life insurance doesn't tend to offer as much flexibility and personalization as buying your own individual policy. Knowing the full details of how it works and compares to personal plans can help you make the most informed decision for you and your family.
How Group Life Insurance Works
With a group plan, you don't actually own your own policy. You pay your company a premium in exchange for coverage under a single contract in their name. This means that you aren't able to sell your life insurance policy for a viatical settlement or other reasons later in life; this is a deterrent for people who get life insurance as a form of financial security and want to receive a lump sum cash payment somewhere down the line.
You receive a certificate of insurance through your employer that proves you are covered, but the actual contract will remain in their name. Typically, group life insurance policies are term, not whole, and generally don't have any cash value.
How Long Does Group Life Insurance Last?
Group policies are best for someone who isn't looking to earn money through their policy. The coverage is generally fixed and doesn't require medical underwriting, so if you have preexisting conditions, it may be more affordable for you than an individual plan with the same death benefit.
However, it is usually issued on a yearly term basis, so if you lose your job or quit, then your life insurance will go with it. If you decide to leave your job, you may be able to convert your coverage to an individual plan with the same provider. This usually isn't ideal though as the cost is much higher for the personal plan than it is under the group package.
How An Individual Plan Protects You
There are many reasons why people prefer to invest in a personal policy rather than take a group offer. Although it can be affordable, the limitations of this form of protection make it less desirable and worthwhile for those seeking long-term security and potential financial gain.
Scale Up
You can switch from cheaper term coverage to a whole plan. Under that umbrella, there are several different types of policies such as universal and variable universal. With a group plan, there is generally one type of coverage issued to everyone. You may be able to add riders, but the modifications are small compared to your options with a plan you own.
Cash Value
Perhaps the most enticing aspect of individual life insurance is the ability to earn a cash value. Every month, a portion of your premium is put toward a personal fund that you can take out and use however you like later. This is a good way to supplement your retirement fund and plan for the future. It can also be used for major expenses like buying a house or paying for your child's college education.
Guaranteed Issue
Whole life policies can have guaranteed issue, which is designed for people who are older and need to cover end-of-life expenses like funeral costs and outstanding debts. This can provide peace of mind to those who do not necessarily need to leave their family with hundreds of thousands of dollars but don't want to pass any financial burdens to their spouses and children.
