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Group Life Insurance Explained: When You Need Extra Coverage


Many employers offer group life insurance as a benefit for employees. It’s a great starting point to financially protect your family, especially since it’s usually free. While there’s no harm in joining your company’s group life insurance policy, it’s rarely considered enough coverage for most people. Here’s everything you need to know about group life insurance and when you may need additional coverage.

What is group life insurance?

Group life insurance is a benefit offered by some companies to help employees get free life insurance coverage. The policy is paid for by the company. A medical exam isn’t usually required, so it’s a nice addition to your broader financial plan. 

The availability of group life insurance may be more common than you think. A 2018 study conducted by the Society for Human Resource Management revealed that 85% of responding companies offer this type of policy for free to their employees. 

The size of your policy may be calculated in one of two ways. The first (and most common) is a flat coverage amount, usually ranging between $25,000 and $50,000. In other cases, your coverage could be calculated as a multiple of your salary. This method is usually reserved for executives since these policies are much more expensive.

Additionally, your employer may only offer this benefit if you work a minimum amount of hours each week. 

How group life insurance works

You may be automatically enrolled in your company’s group life insurance plan when you’re hired. Alternatively, you may need to manually opt in. Either way, pay attention to the details of your policy. You’ll need to name a beneficiary so that if you do pass away, the policy funds may be disbursed according to your wishes.

How much does group life insurance cost? A group life policy should be free through your employer, but the coverage is usually minimal. You may be able to purchase supplemental insurance with the same policy to provide your beneficiary with more money should you pass away. You’ll likely need to take a medical exam in order to qualify for additional coverage and to determine your rate. 

However, you can lose your policy when you leave your job. It’s often better to purchase an additional life insurance policy from a company of your own choosing, rather than directly through your employer. 

Advantages

Getting life insurance through your job is a free benefit, so there’s no sense in not accepting it. That being said, group term life is usually very limiting. Unless you’re an executive receiving a large multiple of your salary, your basic life insurance through an employer is probably not enough.

The other major advantage is that there’s no medical exam required. If you’re older or have pre-existing conditions, it’s great to have a free policy in place without a huge price tag.

Disadvantages

One major issue with employer paid life insurance is that you lose the coverage when you leave the company. There is a chance you can purchase the policy and bring it with you, but it can be a costly move. You may be better off buying your own policy when you’re younger and locking in a lower price compared to when you leave your job at an older age. 

Additionally, you don’t have any freedom in choosing the policy. Group life insurance is usually a term policy and you may not get to pick how long that term lasts. Plus, your employer probably only works with one insurance carrier. If you want a universal life insurance policy, you’ll need to shop elsewhere. 

How to calculate your life insurance needs

So how much life insurance do you actually need? You need to consider a variety of factors, including who depends on you financially and what you want them to be able to do in case you pass away suddenly. At the very least, your life insurance should be enough to cover burial costs.

If you have a spouse and/or children, think about how much they rely on your income and what kind of debt they’ll have to deal with when you’re gone. Many people purchase a life insurance policy that covers the following:

  • Final burial costs
  • One year of salary
  • Mortgage
  • Auto loan
  • Other debts
  • College tuition for each child

Bottom line

Group life insurance is a fantastic benefit to take advantage of from your employer. But for most people, it’s not enough coverage to truly help their families if they pass away. Plus, you can’t feel entirely secure if your policy is only active while you work at your current job.

Buying a separate life insurance policy puts you in control of how much coverage you get and how long that coverage lasts. 

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