Group Life Insurance Through Your Employer

What's typically included, what's missing, and what to do when you leave

What is employer group life insurance?

Many employers offer life insurance as part of their employee benefits package — often called group life insurance or group benefits. The employer typically purchases a group policy from an insurer, and employees are covered under that single master policy.

Coverage is usually automatic at a basic level (enrollment may happen on your first day or after a waiting period), with the option to purchase additional coverage.

How much coverage is typically provided?

Basic group life insurance is commonly set as a multiple of your salary — for example, one or two times your annual earnings. Many plans allow you to purchase additional coverage (supplemental life) at your own cost, often up to a cap (for example, five or six times salary) with reduced underwriting.

Employer-provided coverage may also include:

• Dependent life coverage (usually a smaller, flat amount for a spouse or children)
• Accidental death and dismemberment (AD&D) — separate from life insurance

What are the limitations?

• Coverage ends when your employment ends. If you leave your job — by resignation, layoff, or retirement — your group life coverage typically ends at the same time (or shortly after). This is one of the most important limitations to understand.
• Coverage amounts may not be sufficient. A benefit of one or two times salary may be meaningful, but it may not adequately cover your family's needs — especially mortgage, debt, and multi-year income replacement.
• You cannot take it with you. Unlike individual life insurance policies, group coverage is not portable in its original form. Some group policies have a conversion privilege (see below), but the resulting individual policy terms may be different.
• Coverage may change. Employers can change or cancel their group plan. Coverage that exists today is not guaranteed tomorrow.
• Premiums are often partially taxable. If your employer pays premiums, the death benefit from a group policy may be treated differently for tax purposes than a personally owned policy. Rules vary.

What is a conversion privilege?

Many group life policies include a conversion privilege: when your employment ends (or you become ineligible for group coverage), you may be able to convert some or all of your group coverage to an individual policy — without providing new evidence of insurability (i.e., without a medical exam).

The catch: the converted policy will typically be a permanent (whole life) policy at standard rates, which can be significantly more expensive. And you usually have a limited window to exercise the conversion (often 31 days from the date of termination of group coverage).

If you have significant health issues that would otherwise make individual coverage difficult, this conversion window is highly valuable. Know your deadline.

Should you rely only on employer coverage?

This is a question for a licensed professional who can assess your full situation. However, common considerations include:

• If your group coverage would end when you leave your job, you could find yourself uninsured during a period of transition — potentially when income is already disrupted.
• If your health changes significantly while employed, you may not be able to obtain comparable individual coverage later.
• Your coverage amount may not reflect your actual needs.

Some people choose to supplement employer coverage with individual life insurance — "locking in" insurability while they are young and healthy, independent of their employer.