Why Your Group Life Insurance From Work Isn't Enough

UPDATED: Mar 26, 2020

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When I was in my late twenties, I worked for a large financial services company. It was a good job with significant benefits like medical insurance, matching 401k, vacation and the like. The company also provided a small group life insurance benefit — maybe $20,000 – and offered supplemental life insurance if you wanted more.

I was married with our first child on the way, so I bought the extra life insurance. The total was about $200,000 if I remember correctly. The premiums were deducted from my paycheck, and I never gave it a second thought.

Until I decided to leave.

You (Most Likely) Can’t Take it With You.

That’s what the HR manager told me when I left. I was shocked, angry and terrified to learn my life insurance policy from work was no more. Fortunately, I was also young and healthy enough to get a new policy without much trouble. One I still have, by the way.

Most employer-sponsored life insurance benefits are from group policies. The company owns the policy, and all of the participants in the group receive certificates of coverage. These certificates are not actual life insurance policies, though. With group coverage, there’s only one policy. Employees (or insureds) are allowed to come and go, but the group policy stays in place despite this migration.

This is a good setup for employers because it’s much easier and less expensive to administer this way. It’s also good for employees because it keeps prices low, provides guaranteed coverage and offers the convenience of payroll deductions. However, things get messy when it’s time to leave the group.

Many group policies are not portable. You can’t take the coverage with you when you leave your job, unlike the old group birthday cards and half-dead plants from your office. You simply lose the coverage.

Even if You Can Take it With You, it Will Cost You.

Some group policies are portable, meaning you get to keep your life insurance coverage in force. If you opt for this, you remain a part of the group policy, and you typically pay premiums directly to the life insurance company.

Portable group life insurance policies are often very expensive. The reason is group life insurance pricing is based on experience rating. Instead of using your personal health history and lifestyle, the company combines all employees together and sets rates based on the risk of the group as a whole.

So, while you may be the picture of good health in your office, donut boy in sales and the pack-a-day lady in accounting are not. Unfortunately, you’re subsidizing their poor health.

Some group life policies even offer a conversion option, which is a bit different from portability. This allows you to convert the policy to an individual policy which you own separate from the group policy. These are often quite expensive as well but are usually issued on a guaranteed basis.

It’s Cheap. It’s Easy. But it’s Just Not Enough.

Your group policy may provide enough coverage for you at a reasonable price. Many do. But there may be restrictions and limits to the coverage that negatively affect you later, such as:

  • Limits on coverage – Some policies limit the amount of coverage you can take out. This is because the guaranteed issue design of the policy (no one is declined). It’s often based on some multiple of your income. If you want more, you’ll usually have to go outside the company’s policy.
  • Restrictions on benefits – Many group life policies do not include additional benefits such as accelerated death, disability waiver or child term riders.
  • You have little control – If your employer reduces the benefits or drops the group policy entirely, you could be left with no life insurance.
  • Terminations or layoffs – Let’s face it, these things happen despite how strongly we believe in our relationship with our employer. It’s business and sometimes that means letting good people go. Even if it leaves them with no life insurance.

If your only form of life insurance protection is through your company’s policy, you’re not alone. Four of every ten married couples who have life insurance only have group coverage, according to LIFE Happens.org. But it’s absolutely, without a doubt, better than having no coverage at all.

Take the time now to find out what options you have with your group coverage. You may find that it offers portability and conversion. If so, ask how much it would cost you to take it if you leave. Or you may realize you need something else, like a personal term life policy. Compare costs and see which option saves you the most money and provides peace of mind.

Tim Bain

Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites. You can find him on Twitter.

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