Is Your Group Life Insurance Plan Right for You?

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UPDATED: Jun 29, 2022

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Written By: Jeffrey JohnsonUPDATED: Jun 29, 2022Fact Checked

If you are thinking about getting a group life insurance policy with an association or through your employer, you need to analyze the cost, benefits, and coverage of the plan before you take action. Do not join a group or association life insurance plan without doing research and comparing coverage to an individual policy!

What Is Group Life Insurance?

Group Life Insurance is life insurance that you buy from an organization or group. If you are a professional such as a CPA or a lawyer you may be able to purchase life insurance from a national association of professionals. If you graduated college, you may have life insurance through an alumni association or fraternity / sorority organization. If you are a Union employee, then your Union will probably offer a life insurance group. There are a variety of professional and personal associations that you can belong to which offer life insurance plans, and if you get an offer from one you will need to determine the total cost of joining before you sign anything.

Benefits of Group or Employee Life Insurance

If it is an association-provided policy, there are two key benefits that distinguish it from a private policy:

  • The association’s plan will not be based on your individual situation- Group underwriting permits members of the group who otherwise might not be able to get life insurance, or might be charged an unaffordable premium, to have access to life insurance. Group underwriting could negatively influence young and healthy members, but the practice is considered a benefit for people who look for group life insurance in part because they have a hard time getting life insurance on their own.
  • The group or employee insurance plan comes at a discount. A compelling reason people sign up for association or employer provided life insurance is that the coverage comes discounted or even free depending on the source. This is an attractive draw. It is important that you still do a needs analysis to make sure you don’t need to supplement the coverage.

There may be other appealing options to group or employer life insurance plans such as easy contact with knowledgeable and trustworthy agents provided by the association. If you have any other questions about the benefits of group life insurance, contact an insurance agent with any questions.

Things to Consider Before Joining a Group or Employee Policy

Before you agree to join a group life insurance plan through an association or through your job, there are things that you need to think about:

  • Sudden Departure: you may not be able to convert your employer-supplied group life insurance policy to an individual policy when you leave your job because most are not portable. Since you don’t always choose when your employer cuts life insurance benefits, or when you leave your job, you could be out of life insurance if you become disabled or are laid off or fired. Some companies will give the option to convert your life insurance to a permanent individual policy within 30 days, but if your employer goes out of business or eliminates your job and lays you off, you lose not only your job, but also your benefits. If that happens, you may not be able to convert your plan or afford an individual life policy.
  • Conversion to Individual Plans: If your group life insurance policy is portable and you leave your employer converting the policy could surprise you. You will not pay the same premiums you paid when your policy was a group life insurance policy. You’ll be charged an individual rate that can be higher depending on your health and lifestyle.
  • Additional Costs: If you would not be active in the association without the life insurance then you need to factor in the cost of joining and participating in the group. You should include the cost of association membership, costs for meeting attendance and activities, and whatever other expenses might be associated with maintaining your group membership. Add these costs to your premium rates, and you’ll have a good estimate of the real cost of the group insurance plan.
  • Adequate Coverage: If you join a group or employee plan, you do not always have the ability to select the level of coverage or the insurance company. Your group or employer life insurance plan may not match your insurance needs. Do not blindly rely on group or employer insurance! If there is a coverage gap, then you need to supplement your insurance with a private plan.

Once you understand what you need to think about before signing up for a group or employee life insurance plan, you can compare it to a comparable individual life policy. You should contact an insurance agent and see how closely the agent can match the group or employee life insurance coverage through a private policy. Get multiple quotes, and once you have a quote that you like, you can then see if the association’s policy is really a better deal than private insurance.

Understand Group Life Insurance Rating

The details of life insurance underwriting can be tricky, but there are some basic aspects of group life insurance that are helpful to know. Knowing how your group life insurance is generated will help you see whether or not it is the best decision for you. There are a couple of main factors in rating Group Life insurance plans. Both factor in a group life’s higher cost.

  1. Group life insurance is band rated: This means the insurer premiums are based on assumptions it makes about an age range or band of the group. The premium you pay is not tailored to you. If you happen to be a healthy, non-smoking, 26-year old, you’ll be charged the same premium as a dying, chain-smoking 30-year old, because that’s the band.
  2. Group life insurance is experience rated: The insurer is insuring a group. That group has a death rate that may differ from the general population. If your employer has a few deaths in the past five years or so, the group premiums will be relatively high. The insurer will have adjusted its pricing model to accommodate the higher death rate. You could also say the insurer has paid out some claims and wants to recoup those payments as soon as possible. Raising premiums for the group regains some of the benefits that were paid out.
  3. Group life insurance is priced based on the size of the employer: If your employer has ten or fewer employees, your premiums will be higher than employees of larger employers. Of course, none of this means that group life insurance is a bad deal. Band rating can be an equalizer. Just as it can be overpriced for those who are on the bottom edge of a particular age band and those who are healthy for their age, it can be a good deal for those who would suffer from individualized underwriting. If you are at the top of the age band, older (over forty, or better yet, fifty), or have significant health issues, group life insurance can be a good deal for you.

Retirement and Group Life Insurance

Some companies offer employee group life insurance that continues after retirement. The amount of coverage typically declines in steps over several years after retirement. Eventually it ends or drops to a final, reduced amount. Companies that do not offer post retirement life insurance coverage generally have an option to convert to permanent (non-term) insurance within 30 days of retirement without evidence of insurability and without a medical exam. Again, the price will not be the same as when you were employed. This is still another reason to secure individual life insurance from a reputable life agent as early as possible.

If you are considering joining an association or employer life insurance plan, you should still shop for quotes for private plans to make sure you are adequately covered. It could be worthwhile to discuss your life insurance needs with a life insurance agent. Even if group life insurance does turn out to be a good deal for you, you might still need additional insurance in order to protect your family. Click here for a free quote on life insurance from Free Advice.

Read more about finding the right type of life insurance by clicking here.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

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