Pros and Cons of Group Life Insurance through Work

Life insurance cover is one of the key necessities of life. It is as important as any other basic needs of life. A group life insurance policy is, basically, a single life insurance plan that tends to provide life coverage to a certain group of people. In most cases, group cover life insurance plans are offered by the employers to their employees. This type of life insurance policies facilitates insurance cover to the employees at low premiums. Group insurance plans, usually, come as complimentary benefit package for the employees. The cost of group life cover plans is cheaper than individual cover plans.

How Do Group Life Insurance Plans Work?

Since group life insurance plans are provided by an employer or an organization to their employees, the employer is the original policyholder of the master contract of the policy. However, the members insured under the group insurance plan also receive insurance certificates for their personal record. Group life insurance policies also allow the insured members of the group to add their respective beneficiaries in their insurance plan. Nevertheless, group insurance should not be confused with your personal individual insurance cover. Group plans are not meant for providing lifelong coverage. Employer paid life insurance cover is only valid till your job is in force or until your retirement. Once you change your employer or reach your retirement, the policy will be automatically terminated. You may choose to transfer your policy into individual insurance plans but it could cost higher premiums than usual individual life cover plans.

Although group insurance plans offer lower insurance coverage than actually needed or recommended, one should never say “no” to the employer-sponsored group life insurance policies especially when your individual life cover plan is inadequate or you do not have life insurance policy at all. To simplify the confusion, check out the pros and cons of group insurance policy through work.

Pros of a Group Insurance Policy

Group life cover insurance plans are actually beneficial in terms of life protection and minimal rate of premiums. Some of the pros of group life insurance plans are as follows:

Fair Life Coverage at a Low Cost – The most important feature of group insurance policies is the considerable amount of life insurance cover at an extremely affordable price. In fact, a group plan can provide better coverage as compared to individual life cover plans of the same. If a similar amount of premium is being paid for both a group plan and an individual plan, the group plan will prove to be more beneficial.
Savings for Employer – Group life insurance policies come at the nominal premium rate. A single compact policy could serve life cover to a large group of people. The premium rates of group plans are being determined by the insurance provider considering the type of occupation and risk associated with the job of the lives insured. Despite this fact employers could make huge savings on group plans for employees. Group plans will always be cheaper than individual life cover. There are two possibilities in the payment of group life insurance premium:
The employer or the organization will bear the entire cost of insurance premium and the group insurance is offered as a complimentary benefits package to the employees.
The company or the employer will bear the insurance premium only partially and the remaining portion of the premium is to be paid by the members insured under the plan or employees.
Easy on Employee’s Pocket – Even if the employer or the company pays the insurance premium partially, the employee can easily afford the remaining part of the premium. This is possible because of the low cost of the premium for group life insurance policies. Usually, the premium amount of group plans cost 30% to 35% lower than the premiums of individual life insurance plans.
Insurance Coverage to the Family – One of the greatest benefits of a group insurance plan is that it facilitates coverage to the family of the insured member of the group policy. You employer-sponsored group plan allows you to include your spouse and children along with your plan. You no more need to worry about a supplementary life cover plan for your loved ones.
No Medical Screening – Another key highlight of the group life insurance plan is that it does not mandate medical screening of the member to be insured within the plan, unlike individual life insurance policies. Employer paid insurance is just supposed to provide your life coverage from the day you start your job until the day of retirement.
Tax Benefit of Group Plans – Like all other types of life insurance plans, group life insurance policies are also eligible for tax benefits as per the norms of Income Tax laws. Not only the employer gets tax benefits from the policy but employees are also allowed to receive tax deductions on the premiums contributed towards employer-paid group plans.

Cons of a Group Insurance Policy

As the group plan is meant to cover a large section of people, it has its disadvantages too. Some of the negative aspects of group life cover plans are as follows:

Limited Insurance Cover – Employer-sponsored group insurance policies provide coverage till you are with the same employer. The moment you change your employer or company, the group life cover will get automatically terminated. You cannot transfer the insurance plan to your next employer. This is the reason why group life insurance is not always adequate for a person. You cannot guarantee to continue the same job for the rest of your life. So, you will stay uninsured during the period between jobs. In fact, it is quite possible that your new employer may not offer group insurance cover. In that case you have no other option but to stay uninsured till you get your personal life insurance plan.
No Insurance Coverage After Retirement – Another major problem with group insurance policies is that the insurance is equipped to provide life coverage until you retire. Again, the policy will get automatically terminated once you enter your retirement phase. You have an option to transfer your group insurance cover into an individual life insurance plan, but that would cost you far more than the actual cost of individual policies. It is fair to say that solely relying on the employer-sponsored group life insurance plan is inadequate. Sooner or later you will need a supplementary individual life insurance policy.
Family Gets Uninsured Too – As your group insurance gets terminated when you switch jobs or retire, if you have your family included in your employer paid group insurance your family also gets uninsured along with you. It is, therefore, wise to get you and your family insured under a proper life insurance plan when you are still young. The earlier you get insured, the better coverage you find at lower premiums.
Smaller Coverage – Although group life insurance provided by the employer ensures a considerable amount of life coverage, it is often far below your actual need for insurance coverage. Relying only on the group insurance plan could leave you and your family underinsured. At difficult times when you would need to claim the insurance, you would be left disappointed. Even though you accept group insurance cover by the employer, you should insure yourself and your loved ones with supplementary life cover plan that could bridge the gap of your insurance requirement.
Same Premium for Healthier Individuals – In group insurance plans you cannot avail the benefit of being healthy. The share of premium determined by the employer or the organization applies to every member within the group plan. This suggests that both an employee with a serious health condition and a perfectly fit employee would pay equal premiums towards the group insurance plan provided by employer or company.
Little or No Control Over Personal Coverage – Anything and everything related to the group life insurance will be controlled and regulated by the employer Here, the employer or the organization is the sole policy owner of the group policy. Being a member of group insurance plan you can expect a little or almost no control over your personal choices on individual insurance coverage. This means no customization is possible within the group plans.
No Additional Benefits are Available – Unlike individual life insurance policies your employer-sponsored group insurance does not come along with additional perks and benefits. You cannot customize your coverage limits, cannot avail add-on features, cannot receive rider benefits, etc. All the features available under group plans are limited. Besides, the sum insured is also nominal which could provide your family with only some basic financial support unlike individual life cover policies.

Conclusion

Like every insurance plan, group insurance plans sponsored by an employer have both pros and cons. Both advantages and disadvantages of group insurance policy have been discussed above. However, if offered by the employer, one should always go for group insurance cover because these plans are cost-effective, allows tax benefits, and provides extended coverage facility to your family. But at the same time, one should identify the fact that group insurance alone cannot meet the actual insurance requirement of the individual. It is always advisable to assess you insurance needs and seek for a supplementary life insurance cover apart from work group insurance cover. Get individual insurance to meet the insurance needs after retirement and also to stay prepared for those times when you are switching between jobs.