- Employer coverage is often one to two times salary, which rarely covers a family long term.
- It usually ends or changes when you leave the job, though some plans offer portability or conversion.
- Treat it as a bonus on top of a policy you own, not your whole plan.
If your employer offers life insurance, it is worth having. It is usually free or inexpensive and easy to enroll in. But many people assume it covers everything and never look further, and that assumption can leave a family underprotected. Here is what group life insurance does well and where it falls short.
How group life insurance works
Group life insurance is a single policy an employer holds for its employees. Typical features include:
- Basic coverage. Often a flat amount or a multiple of salary, such as one or two times annual pay, paid for by the employer.
- Supplemental coverage. Optional additional coverage you can buy through payroll, sometimes with limited health questions up to a certain amount.
- Spouse and child coverage. Some plans let you add small amounts for family members.
- Accidental death coverage. Some plans include extra benefits for accidental death.
The advantages
- It is convenient and low-cost, and often the basic amount is free.
- Approval is usually easy, with little or no medical underwriting for basic coverage.
- It can be a lifeline if you have health conditions that make individual coverage expensive.
Where it falls short
The amount is often too small
One or two times salary may sound like a lot, but it can be spent quickly. For a family with a mortgage, children and years of income to replace, the gap between group coverage and what the family needs can be large. Use our coverage calculator to see how your needs compare.
It usually does not follow you
Group coverage is tied to your job. If you leave, are laid off or retire, coverage typically ends, often at the end of the month or shortly after. Some plans offer portability, which lets you continue the group coverage, or conversion, which lets you switch to an individual policy. Deadlines can be short, sometimes around 31 days, and the premiums are usually higher than active-employee rates.
Coverage may decrease with age
Some plans reduce the benefit as you get older, for instance at certain age milestones. Check the schedule in your benefits documents.
You do not control it
Your employer can change insurers, alter the benefits or end the plan. An individual policy you own is stable for its term.
A tax detail
Under IRS rules, the cost of employer-paid group term life coverage above $50,000 is generally treated as taxable income to you, known as imputed income. Your payroll or HR department can tell you if this applies. See is life insurance taxable?
A sensible way to combine group and individual coverage
- Work out your total need. Use the DIME method.
- Subtract group coverage cautiously. Count it only for as long as you expect to stay with the employer.
- Buy an individual term policy for the core of your need, so it stays with you if you change jobs.
- Treat group coverage as a supplement.
- Know your options if you leave. Ask HR about portability and conversion deadlines, and see term life conversion for the individual-policy equivalent.
Things to do this month
- Log in to your benefits portal and check the amount of basic coverage.
- Confirm your beneficiaries are current. See how to choose a beneficiary.
- Find the plan's portability and conversion rules.
- Compare the cost of supplemental coverage with an individual quote.