From the Learning Center

Group Life Insurance vs. Individual Life Insurance: What’s the Difference?

By the Bestow Team·April 01, 2022·6 Minute Read

In this Article

These days, you may think of work perks as ping-pong and fancy snacks, but the real benefits of full-time employment are things like a predictable salary, paid time off, medical insurance, and even employer-sponsored life insurance. If you’ve got loved ones who depend on you financially, you’ve probably considered life insurance before, so getting it through your employer feels like a nice bonus (and it is!).

The life insurance you’d typically get from an employer is a type of group life insurance policy — not to be confused with an individual life insurance policy. What’s the difference between these two types of insurance? Let’s get into it.

What Is Group Life Insurance?

You’re likely familiar with various kinds of individual life insurance. There’s usually an application process and, if approved, you can buy a policy that covers your life. Group life insurance is different in that it is offered to a group, like employees at a company, for example. Typically, larger companies are more likely than small businesses to offer group coverage as part of their employee benefits package, and many of these employers cover the entire premium cost. Pretty nice, right?

With a group policy, employees are usually offered a base coverage amount and, in some cases, the opportunity to add additional coverage through a payroll deduction.

An important note here is that this kind of group coverage is typically only in effect while you are an employee of that company. If you change jobs, you may not be able to take your group life insurance policy with you.  

What Is Life Insurance?

When purchased as an individual policy, life insurance can be permanent or last for a specific period of time (aka the “term”). With group term life insurance, the term and coverage amounts are typically set by the employer. If you purchase individual term life insurance, you get to choose the payout amount and policy term.

In other words, your employer might offer a $50,000 policy that lasts as long as you are an employee, while individual term life insurance policies offer more flexibility. With Bestow, for example, you can choose a death benefit from $100,000 up to $1.5 million, and term lengths up to 30 years.

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Group Life vs. Individual Life Insurance

Hurrah for healthy work culture and benefits! Being offered group term life insurance through your employer is a real work perk. But it’s important to compare group vs individual insurance options to make sure you’ve got the coverage that works best for your needs. 

Is Group Life Insurance Enough for You?

The Pros of Group Life Insurance

No (or very little) medical underwriting. If your employer offers a group policy, you may be able to get coverage without answering health questions or undergoing a medical exam. 

Your employment makes you eligible. In most cases, group life insurance is a straightforward offer that can be accepted without eligibility issues. 

It usually doesn’t cost you anything. If a company touts life insurance as an employee benefit, they will typically cover the premium costs. That effectively makes coverage free. Who can argue with that? Not us.

The Cons of Group Life Insurance

It might not be enough coverage. How much life insurance do you need? The ideal amount of coverage varies from person to person, but a good rule of thumb is to think about how many years of your income you’d like to provide your loved ones should you pass away, and then compare that amount to the death benefit of your group policy.

You might get a false sense of security. We’re the first ones to celebrate getting life insurance but sometimes being covered by a group policy can cause people to check life insurance off their to-do list without actually sitting down and determining if the payout is enough. 

If you quit your job, you might lose your life insurance. Some group policies end when you leave the company, while others offer portability, which presents an opportunity to convert a group life insurance policy to an individual policy (heads up, this can be costly as rates are determined by age, health, and lifestyle). 

Your insurance needs aren’t usually considered. Group life insurance policies are designed to cover a group of people and do not typically address individual needs.

Supplemental Life Insurance

Some group life insurance policies offer employees the option to purchase additional coverage called supplemental life insurance. The amount of supplemental coverage you can buy varies and is usually correlated with your annual salary. If you go this route, you may want to inquire about the portability of your group life insurance policy.

Is an Individual Term Life Insurance Policy Right for You?

Learning more about an individual term life insurance policy is a good idea, even if you have group life insurance. Start by assessing your insurance needs, then weigh out the pros and the cons.

The Pros of Individual Term Life Insurance

This policy goes where you go. When you purchase an individual life insurance policy, you’ve got portability. You can quit your job, start a rock band, or become a digital nomad, and as long as you make your premium payments, your policy is valid. 

You can get the amount of coverage and term period you need. With term life insurance, death benefits can be anywhere from $50,000 into the millions and policies can last one to 30 years. It’s the kind of flexibility that could help you zero in on a policy that’s just right for you. 

Your rates are locked in. The younger and healthier you are, the lower your premiums will usually be. And if you buy a level-premium term life insurance policy, your rate will remain the same throughout the life of the policy.

The Cons of Individual Term Life Insurance

You are (probably) paying for it. If you are the policyholder, you are likely covering the cost of the premiums. 

The rate you pay will be determined by your health and lifestyle. Older people who are not in great health and smoke cigarettes will likely pay higher premiums than a non-smoking person who is a bit younger and healthier. 

You might not get approved. Insurers conduct a risk analysis during the underwriting process. If something in your background comes up as a red flag and presents too much of a risk, they may not offer you a policy. 

Other Types of Insurance to Consider

Though term life insurance is most commonly purchased, there are other ways to get life insurance coverage. Some other insurance products offer a cash value component, which can be intriguing but does often result in higher life insurance premiums. 

Whole Life Insurance

Whole life is a type of permanent life insurance and, in addition to a death benefit, features a cash value component. When compared to term life insurance policies with the same coverage amount, whole life will always have higher life insurance premiums. So while some of the benefits may interest you, they will likely also cost you.

Universal Life Insurance

Universal life insurance is a type of permanent life insurance that allows the policyholder to choose the amount of coverage and can accumulate cash value. Your beneficiaries will receive the policy’s death benefit (but not the cash value).

Variable Life Insurance

If the stock market is your thing, you might be interested in a variable life insurance product. Variable life insurance is permanent, as long as premium payments are made and there is enough cash value to support the policy. 

Final Expense Insurance

This type of permanent insurance might be something for people in their golden years to consider especially those concerned about higher premiums. The death benefit, typically under $50,000, is designed to cover funeral, burial, and other end-of-life costs.

Finding The Right Type of Life Insurance for You

If you have group life insurance but feel like you need a little extra protection, research your options and get a few quotes. With Bestow, you can get a term life insurance quote in seconds and fully apply in minutes. The whole process is online and there are no medical exams. It’s just you, your device, and a few clicks. Apply now and, if approved, you could activate up to $1.5 million in coverage by the end of the day.  

The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.