Group Life Insurance: Payout Frequency And What To Expect

Group life insurance is a single contract for life insurance coverage that extends to a group of people. It is usually offered by employers as part of a benefits package, but it may also be offered by unions and trade organizations. Group life insurance is often inexpensive or even free for employees, and it does not require a medical examination for eligibility. However, the coverage amount is typically low, and it is not portable, meaning that if an employee leaves the company, they will lose their group life insurance coverage. While group life insurance is a valuable perk, it usually does not meet all the insurance needs of an individual, and they may need to purchase additional coverage.

How much does group life insurance usually pay out?

Group life insurance is often provided by an employer as part of an employee benefits package. It is usually free or low-cost for the employee and can be a good way to get a small amount of coverage. However, it typically only covers a low amount, such as one to two times your annual salary, or a flat amount of $25,000 to $50,000. This may not be enough to meet your insurance needs, especially if you have dependents or financial obligations.

The amount of coverage available to you may depend on your position in the company. Highly paid executives and managers may have access to more robust benefits than lower-level or hourly employees. Some upper-level employees may even be eligible for both a group policy and an individual policy.

You may also have the option to purchase additional coverage through your employer, known as supplemental, optional, or voluntary life insurance. This can be a good option if you have been declined private life insurance in the past due to age or a chronic illness. The cost of supplemental coverage will depend on how much coverage you want, your age, and whether your employer subsidizes any premiums.

If you are considering group life insurance, it is important to weigh the pros and cons. On the one hand, it is convenient, low-cost, and guaranteed coverage. On the other hand, it may not provide enough coverage, it is tied to your job, and you may have limited choices. If you change jobs, you will likely lose your coverage, and converting to an individual policy can be costly.

Ultimately, while group life insurance can be a good perk, it is usually not enough on its own. Most people are best off getting an individual life insurance policy and supplementing that coverage with a group policy. Industry experts generally recommend having enough life insurance to cover between 5 and 10 times your annual salary.

How does group life insurance work?

Group life insurance is a single contract that provides coverage to a group of people, typically those who work for the same company. It is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members. It is a common employee benefit that provides a death benefit to the insured's beneficiaries if they die while part of the organization.

The employer owns the policy, which covers the employees, and pays a monthly or annual premium based on the number of employees and the amount of coverage offered. The typical coverage amount is equal to the annual salary of each employee, but an employer can pick different benefit levels. The benefit level can be a flat amount—like $50,000, for example. Often, there is an option for extra coverage if the employee wants to pay the additional premiums.

Group life insurance is generally less expensive than individual life insurance because the employer pays all or most of the cost. It's often easier to qualify for because there's no medical exam required—unless you want to buy extra group life. It's also easy to get because you can sign up during employee onboarding or open enrollment. You may also be able to add coverage for a spouse and/or dependent.

However, if you leave your job, you will often lose coverage. The death benefit of a group life insurance policy is usually lower than that of an individual policy, and most group life insurance policies don't have cash value, which means you can't borrow against them.

What are the pros and cons of group life insurance?

Group life insurance is a single contract for life insurance coverage that extends to a group of people, usually employees of a company. It is usually offered as a workplace perk, with the company subsidising some or all of the benefits.

Pros

• Convenience: It is relatively simple to get coverage through work. The paperwork is often part of your hiring documents, and HR departments are typically on hand to answer your questions.
• Price: Basic coverage through work is usually free or offered at a low cost, making it an easy way to get a small amount of coverage.
• Acceptance: Most basic life insurance plans through work are guaranteed, so even people with serious medical conditions can qualify.

Cons

• Coverage is tied to your job: Group life insurance is often not portable. This means if you leave your job, you may not be able to take the policy with you. You might be able to convert your group policy to individual life insurance, but the price could go up significantly.
• Limited choice: Coverage through work tends to be a type of term life insurance, and employers typically only work with one carrier. Therefore, you won’t find the range of policy options that you might find outside of work.
• Low coverage amounts: If you have dependents or a lot of financial obligations, a group life insurance policy might not be enough. Typical amounts are $20,000, $50,000, or one or two times the insured’s annual salary.
• Premiums aren’t fixed: The premiums for group life insurance go up either on an annual basis or every five years.

How much does group life insurance cost?

Group life insurance is a single contract for life insurance coverage that extends to a group of people. It is offered by an employer or another large-scale entity, such as an association or labour organisation, to its workers or members. The cost of group life insurance depends on various factors, including staff salaries, the level of cover, industry, occupation, employees' ages, group size, and work location.

Staff Salaries and Level of Cover

The cost of group life insurance is influenced by the salaries of the employees covered and the level of coverage provided. Insurers typically pay a multiple of the employee's salary in the event of their death, and higher salaries result in higher premiums. The level of coverage is usually a multiple of the employee's salary, such as 2, 3, or 4 times their annual pay.

Industry and Occupation

The cost of group life insurance also takes into account the risks associated with different industries and occupations. Occupations such as manual work, working at heights, or underwater are considered riskier and will have higher premiums.

Employees' Ages

Older employees are more likely to pass away, and as health can deteriorate with age, older employees will result in higher premiums.

Group Size

Larger groups can benefit from economies of scale, resulting in lower costs per employee.

Work Location

The location of the workplace matters as different areas have different life expectancies, which can impact the length of cover and, consequently, the cost.

Additionally, the cost of group life insurance per employee can vary depending on the cease age of the policy, which is often set to 65 or the state pension age but can be as high as 75. A higher cease age means a greater risk to the insurer, resulting in higher premiums.

While there is no straightforward answer to the cost of group life insurance, it is generally considered one of the most cost-effective employee benefits available. It demonstrates an employer's commitment to their employees' wellbeing and can foster a positive and loyal culture.

What happens if I change jobs?

If you change jobs, you will likely lose your group life insurance coverage. This is because group life insurance is often not portable, meaning it is tied to your job and provided by your employer. Once you are no longer employed by the company, your coverage ends.

However, some group life insurance policies are "portable", meaning you can continue to buy the group life insurance at your own cost after leaving your job. These policies typically offer a conversion option, allowing you to convert your group benefits coverage to an individual policy within a certain time frame after your employment termination date. This new policy may carry a much higher premium, but it won't require a medical exam.

It's important to note that if you have health issues, converting your group policy to an individual policy may be a good option, as the conversion won't require a medical exam and you may have difficulty obtaining new coverage on your own.

Additionally, if you are planning to change jobs, it's a good idea to have an individual life insurance policy in place to ensure continuous coverage. Individual policies are more flexible and can be customised to your needs, but they may require a medical exam and are typically more expensive than group policies.

Frequently asked questions