Open Enrollment Season: Pros and Cons of Employer-Provided Group Life Insurance

A man asks his employer at work about his group life insurance policy while reading about his company's benefits package

As part of your company’s benefits open enrollment period, you may be offered group life insurance. Group life insurance is an affordable way to get basic life insurance coverage, but it’s not the only life insurance coverage option you have.

If you’re considering taking a group life policy with your employer, you should be aware of how it fits into your overall financial plan. Let’s talk about what group life insurance is, what it covers and then explore the pros and cons of group life insurance through your workplace.

What is group life insurance?

Group life insurance is coverage often offered through your employer’s benefits package. Employee life insurance is often offered as part of a one-year term and most (if not all) of the premium is typically covered by your employer. Policy coverage for workplace life insurance is also usually only 1-2 times your annual salary.

Group term life insurance, however, differs from an individual term life insurance policy in several key ways. For example, when employers offer a group life policy, it means that one contract provides coverage for an entire group of people. Instead of an individual owning the policy—like you—the company is the policyholder.

Pros: Benefits of Enrolling in Group Life Insurance

One of the biggest benefits of group life insurance is its affordability. Because premiums are partially (or totally) paid for by your employer, you can acquire a basic amount of coverage at little to no cost.

In addition to low cost, group life insurance doesn’t usually require a medical exam for approval. Because you’re part of a pool of people covered, factors such as medical history, age, and overall health aren’t taken into consideration. That makes it easy to get approved for this kind of policy.

There are situations where you may apply for supplemental life insurance coverage as part of your group life policy. In these cases, the insurance company may require you to undergo a medical exam. Supplemental life insurance policies typically offer 3-4 times your annual salary as a death benefit.

Quick Review: Pros of Group Life Insurance

  • Very affordable and sometimes paid for entirely by your employer
  • Approval is easy, with no medical exam required to get coverage
  • A good option to start building your family’s financial safety net

Cons: Where Group Life Insurance Falls Short

Unlike with other life insurance options, group life insurance through your employer only lasts as long as you’re working there. Once you leave the organization (either for another job or if you are let go or fired), you can’t take the policy with you. In addition, sometimes employers will determine that life insurance is no longer a cost they want to absorb. Because they’re the policyholder, they have the power to cancel the coverage at any time. This leaves the control of your coverage in their hands.

Without additional life insurance, you may not have enough coverage to provide for your loved ones if something unfortunate happens to you. Consider the cost of paying off any outstanding debt (student loans, car payment, credit card debt), your monthly mortgage, setting aside money for college tuition and the general cost of living for your family—is 1-2 times your annual salary enough to cover all those expenses? This is why many financial experts recommend purchasing life insurance coverage that is 10-15 times your annual salary. 

By putting off buying an individual life insurance policy now, you’ll face higher costs down the road because the cost of life insurance increases as you age. The monthly premium a 35-year old pays each month for life insurance will be substantially less than what a 55-year old will pay. Inflation is also an important factor: a $50,000 policy purchased today will not be worth $50,000 in 30 years when you account for inflation.  

Because group life insurance terms tend to be one year, prices could increase year over year and be impacted by the range of employees covered. Compare this to a traditional term life insurance policy with increments of 10, 15, 20 or 30 years, whose prices are consistent for the duration of the policy. 

Options for group life insurance coverage are also more limited: you’ll only be able to work with one carrier, chosen exclusively by your employer. When shopping for your own individual policy, you have a host of carriers available to you. And when you shop with SelectQuote, we do that shopping quickly and effectively for you, finding the right policy for you that meets your coverage needs and fits your budget. 

Quick Review: Cons of Group Life Insurance

  • You can’t take it with you if/when you leave a job
  • Your employer can cancel or reduce your coverage at any time
  • Group life insurance through work is typically not enough to provide for your family in the event of your death
  • Single-year terms for group life insurance mean they’re subject to price increases 
  • You can’t choose the insurance carrier

How much life insurance do I need?

The recommended amount of life insurance is at least 10 times your annual salary. Most employer-sponsored life insurance policies only provide 1-2 times your annual income—far below the recommended amount. Would the death benefits offered by your group life policy be enough to cover your mortgage, student loans, and other existing debts? Would it also be able to provide for your loved ones after you pass away?

To help figure out just how much insurance you need, it’s best to consider your current circumstances and any financial decisions you may want to make in the immediate future. Our life insurance calculator can help you figure out how much life insurance coverage is right for you.

Your Life Insurance Policy Options

If you’re thinking of buying your own life insurance policy outside of your employer-provided coverage, you’re not alone. By purchasing life insurance as an individual, you won’t be tied down to your workplace coverage and will have the opportunity to compare policies and rates from multiple companies at once to find the right one for you.

You could buy term life insurance that’s known for its affordability or a whole life insurance policy that you’ll have access to for the rest of your life. This lets you budget for coverage and secure peace of mind that your loved ones will be provided for if something happens to you. 

Worried about approval due to health concerns? Consider no medical exam life insurance.

Let SelectQuote find the best life insurance for you.

Relying completely on employer-provided life insurance could result in less than adequate coverage. Between the lack of choice in carrier and policy type and the lower benefit amounts, it’s possible you may not be able to fully provide for your family after you’re gone. Plus, there’s a chance you could find more affordable rates for more coverage by going with an individual life insurance policy instead.

At SelectQuote, our licensed insurance agents can walk you through all your options for life insurance coverage. Our technology allows us to compare plans from dozens of trusted carriers and zero in on the ones that work for you and your budget, all in just minutes.

Get started on your free life insurance quote today.

We do the shopping. You do the saving.