Why Should I Get Group Term Life Insurance Instead of My Own Policy?
A group life insurance policy covers numerous non-related people, while an individual life insurance policy covers one person. Because a group life insurance policy covers multiple people, the underwriting is based on the experience of the group instead of the individual. Though this is the primary difference, there are varying attributes between the two different types of policies.
Most group policies are a form of annually renewable group term life insurance coverage. Although permanent group life insurance is available, it’s not used as often. Permanent or whole life insurance lasts for a lifetime, grows cash value, and is usually more expensive than term life insurance.
A term life insurance policy lasts for a period of time and does not grow cash value. Because people are regularly moving in and out of the group, a group term life insurance plan is the logical choice for most groups. An individual policy revolves around your specific needs, and the type of life insurance policy you choose, term or permanent, is your determination.
To participate in a group life insurance policy, the group must consist of 10 or more unrelated people whose purpose is other than obtaining life insurance. All insureds are under one master policy. The sponsor of the group is the policy owner and holds the master policy, while the insured receives a certificate of insurance. With an individual life insurance policy, the policy owner is typically the insured.
Group Term Life Underwriting
Because underwriting is based on the experience of the group, a medical exam is rarely required, and acceptance is guaranteed. If you have an illness, you will still receive the same life insurance benefits and premiums as your healthy coworkers. With an individual life policy, if you have an illness, you may have to pay higher premiums than healthier applicants, or you may be turned down.
When premiums of the group term life insurance plan are paid entirely by the sponsor, the plan is noncontributory. Noncontributory plans must cover 100 percent of the group. If participants in the group policy split the premiums with the sponsor, it is a contributory plan. Members are not required to participate, but the required minimum participation is usually 75 percent. Individual policy premiums are the responsibility of the policy owner.
Group life insurance must be tailored to the advantage of the group. Underwriting classifies risk for members of the group, with the consideration that members do not choose the benefit amount. A group member in good health gets the same benefit amount as a member who may have an illness, therefore the plan stays nondiscriminatory. An individual policy ’s benefit amount meets your specific needs to cover your financial obligations.
Group term life insurance policies offered to group members may also extend benefits to your spouse or domestic partner and children. To cover your loved ones with your individual life insurance policy, riders such as a children’s term rider or a family term rider must be added.