Group life insurance through work is a genuine benefit and it is usually free. It is also, for most people with dependants, nowhere near sufficient — and it has three structural weaknesses that are easy to miss until they matter.
#Weakness 1: the amount
Typical employer-provided cover is one to two times base salary. For someone earning $95,000, that is $95,000 to $190,000.
Run a proper needs calculation and the figure is usually somewhere between $800,000 and $1,400,000 once a mortgage, income replacement and education are included. Group cover typically closes 10% to 20% of the actual gap.
It is worth being precise about what that means. A $190,000 payout against a $285,000 mortgage does not let the family stay in the house. It reduces the mortgage. Those are very different outcomes for a household that has just lost an income.
Work out your own number with the life insurance calculator, then subtract your group cover. The remainder is what you actually need to buy.
#Weakness 2: it is not portable
This is the weakness that causes real harm, because it arrives at the worst possible moment.
Group cover ends when your employment ends. Redundancy, resignation, retirement, or a move to self-employment all terminate it. If your health has changed since you took the job — and over a ten-year period it often has — you may no longer qualify for individual cover at standard rates, or at all.
Most group policies offer conversion to an individual policy without medical underwriting, but the converted premium is usually substantially above what you could have bought privately while healthy, and the window to exercise it is short, typically 31 days.
The practical rule: your core cover should be a policy you own, that follows you, and that nobody else can cancel.
#Weakness 3: cost rises with age on supplemental cover
Base group cover is normally free. Supplemental group cover — the option to buy extra multiples of salary — is priced in five-year age bands, and the premium steps up sharply at each birthday band.
At 30 it looks cheap. At 50 it is frequently more expensive than an individual level term policy bought a decade earlier and held. Because the premium changes annually, you have no cost certainty at exactly the stage of life when your budget is least flexible.
Individual level term locks the premium for the entire term. A twenty-year policy bought at 35 costs the same at 54 as it did on day one.
#When supplemental group cover is worth taking
Three cases:
You have a health condition that makes individual underwriting difficult or expensive. Guaranteed-issue group cover may be the only cover you can get, and the age-banded pricing is a fair trade.
You need cover immediately while individual underwriting is in progress. Underwriting can take four to eight weeks; supplemental group cover starts at the next payroll cycle.
You are young and the amount is small. Topping up modestly in your twenties is cheap and the portability issue is less pressing when you have no dependants.
Outside those, buy an individual policy.
#What to actually do
- Find out exactly what you have. Log into your benefits portal and note the multiple, the cap, whether it reduces at a certain age, and what happens on termination. Many policies have a dollar cap that binds well before the salary multiple does.
- Calculate your real need using your mortgage, income replacement years and education costs.
- Buy the difference as individual level term, matched to your longest obligation — usually twenty or thirty years.
- Keep the group cover. It is free, it stacks on top, and it is a useful buffer.
- Re-check after any major life event — a child, a house move, a salary change, a divorce.
#The timing argument
Term life is priced on age and health at the point of purchase, and both move in one direction. A policy bought at 32 in good health costs a fraction of the same policy bought at 45 after a routine diagnosis.
The most expensive decision available is postponing it. Underwriting for a $1,000,000 twenty-year term policy takes a few weeks and one medical exam, and the premium for a healthy thirty-something is typically less than a modest monthly subscription.
Frequently asked questions
Can I take my employer life insurance with me when I leave?
Generally no. Most group policies offer a conversion option to an individual policy without medical underwriting, but the window is short — often 31 days — and the converted premium is usually well above market for a healthy applicant.
How much supplemental cover should I buy through work?
Prefer individual level term for your core cover because it is portable and price-certain. Use supplemental group cover if you have health issues that make individual underwriting difficult, or as a temporary bridge.
Does group life insurance cover me outside work hours?
Standard group life covers death from any cause at any time, subject to policy exclusions. Do not confuse it with accidental death and dismemberment cover, which pays only for accidental death and is a much narrower product.