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July 15, 2021

Does Group Life Insurance Cost Less than Individual Policies?

comparing life insurance

Families that face a sudden loss often struggle to alleviate the financial burdens of final expenses and provide for loved ones. Life insurance coverage may help provide for your loved ones in the event of your passing.

Many different life insurance options are available at many different price points. But how do you choose which type of life insurance policy works best for you and your family?

If you are offered full benefits at work, one of the first decisions you may need to make when shopping for life insurance coverage is whether to get group or individual life insurance. Group life insurance policies and individual life insurance policies come with different features, benefits, and costs. You can even have both group life insurance and individual life insurance coverage. Knowing how each type of life insurance policy works is one of the first steps in helping to find the best coverage for your budget.

How does group life insurance coverage work?

Group life insurance coverage is provided to a group of individuals by an organization, usually through an employer or labor union, under a single contract with a pre-selected carrier. Common group life insurance features include:

  • Employer-sponsored – The employer pays most if not all of your premiums, with coverage set usually at one to two times your salary.1
  • No medical exam – When opting into group life insurance coverage, you will most likely not be required to complete health questions or take a medical exam.1
  • Family protection – Generally, you would be required to submit only minimal paperwork at the time of hiring or open enrollment to obtain coverage, and you may be able to add life insurance coverage for dependents at that time.
  • Portability – Group life insurance coverage may end when you separate from your employer via layoff, termination, resignation, or retirement. This means that your coverage may end when your job does. Some employers may leave the employee with a minimal benefit that is paid up upon their departure, or offer you the option to convert to an individual policy post-employment.

How does individual life insurance work?

Unlike group life insurance, you select and purchase an individual life insurance policy on your own, which means you may have many more choices. Common individual life insurance coverage features include:

  • Freedom in choice – More options for carriers and types of coverage, including term life insurance, which is what is usually offered through group insurance, and “permanent” life insurance, which can build cash value.
  • Medical exam – You may be required to undergo a medical screening and/or complete a health questionnaire to obtain individual life insurance and determine your premium.

Doing the math on what type of life insurance coverage is more cost-effective.

As noted earlier, the employer pays most if not all of your group life insurance coverage’s premiums, with coverage set usually at one to two times your salary.1

There would only be a cost to compare if the employee wants to purchase additional insurance through the group policy.

Assuming the employee did want more insurance through a group policy, group life insurance coverage is largely regarded as less expensive than individual life insurance coverage.

Furthermore, the difference in price between group life insurance and individual life insurance policies depends on whether the employee wants an employer's term life insurance coverage or individual permanent life insurance coverage.

If an employee wants employer term life insurance coverage, taking these age-related cost factors into consideration may be helpful:

  • Getting older – The older you get, the greater the chance a life insurance provider may have to pay the death benefit on your policy. This often may cause your premiums to increase.
  • Time length – Identifying the length of the term (time) you need coverage is important in determining what type of life insurance coverage to purchase. With an individual life insurance policy, your premium is generally locked in at the time of initiation.

If an employee wants individual life insurance coverage, taking these cost factors into consideration may be helpful:

  • Needed coverage amount – You will need to determine whether low multiples of your salary are a sufficient amount of coverage for your needs.
  • Portability – Consider how long you intend to stay at your job (and your job security) knowing that your life insurance may end when your employment does.
  • Additional coverage – Obtaining supplemental life insurance beyond the employer’s basic benefit level may require providing evidence of insurability.
  • Tax implications – Understand that there may be tax implications on the value of any employer provided benefit.2

The ultimate cost of obtaining either type of life insurance – group life insurance coverage or individual life insurance coverage – will vary by individual. Research the different factors that contribute to life insurance’s cost and compare different types of life insurance coverage to see which option best fits your needs. Calculating the lifetime expense of these options to the best of your ability will help give you the most accurate cost projection.

Speak to a licensed insurance agent if you have any questions about your insurance needs, including group life insurance and individual life insurance.

  1. Texas Department of Insurance, Life insurance guide, 2021
  2. Insurance Information Institute, How to save money on life insurance, Accessed June 2021

Categories: Insurance, Group Life

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