Individual vs. Group Life Insurance: What to Consider

For many people, the notion of buying life insurance is intimidating. First of all, it requires us to think of something we’d rather not think about—the possibility of leaving our loved ones unprovided for in the event we become severely incapacitated or even lose our lives. But once we’ve faced up to our mortality, it’s time to think rationally about our life insurance options. And one of those options is purchasing group life insurance.

Many employers offer group life insurance to their employees. Oftentimes, there’s a free element included in your general benefits package, with the option to purchase supplemental life insurance for more comprehensive coverage. Now, for the inexperienced consumer, this might seem like a great deal. After all, group life insurance has two distinct advantages. First, your employer has done all the legwork for you, so all you have to do is sign the papers. And second, you don’t have to do a physical. Sounds great, right?

Well, maybe, and maybe not. Any coverage you get for free is a good deal, so definitely go with that! But before you agree to the rest of the group policy, take a moment to consider whether it offers you the best coverage for your situation. Keep the following points in mind:

  • Do you have a pre-existing condition or are you otherwise in poor health? If the answer is yes, then a group policy that doesn’t require you to do a physical could work in your advantage. However, if you’re in good health, then an individual policy where the rates are based on a physical and your medical history is likely more affordable.
  • How much coverage do you need? A group policy through your employer usually provides coverage equal to a year’s salary. But for many people, this isn’t enough. If your personal situation merits more coverage, then you’re better off with an individual policy.
  • How much flexibility will you have? In general, group policies have premiums that are locked in for five-year periods. That means your coverage can be reassessed—and increased—every five years. An individual policy, however, can often have premiums locked in for 20 or 30 years, which usually is more cost-effective.
  • Will you stay with your employer for life? This has become more of an issue in recent years, since people don’t typically spend their entire careers with a single employer. You need to consider what would happen to your policy in the event you move on. Not all employers offer life insurance, and not all insurance policies can be transferred. You could wind up having to purchase individual life insurance later in life—and by then, who knows how your health will be?

Deciding between individual and group life insurance is a choice every individual has to make for his or herself. Just always keep in mind that convenience should never, ever take precedence over cost-effective, comprehensive coverage.