Life insurance is a significant consideration when looking to secure the financial future of the people you love and those that depend on you. However, it often gets confusing when you have to choose between group life and individual life coverage.
Some people may tell you that you only need one and others may recommend both. So, what should you do? Before making any rash decision, it’s essential to know what each of the life insurance coverage represents. Let’s get started.
What is Individual Life Insurance?
Individual life insurance refers to a policy that you own and one that you can take into your retirement. It requires you to pay age-based premiums that are initially high. Since you own the policy, you continue paying premiums to the insurance company as agreed even when you retire or change employers.
What is Group Life Insurance?
Unlike individual life insurance which you can take into your retirement, group life insurance only last you during your working period. It is not a personal contract. On the contrary, it is owned by the employer. Premiums for group life insurance are cheaper initially but tend to increase with age. The coverage ends when you stop working.
What Are the Key Differences?
To understand the key differences between group life insurance and individual life insurance, let’s compare the two based on the following seven parameters:
Though you may be eligible for group life insurance because you are an employee, you don’t own the policy. If you resign or get fired from your job, you relinquish your benefits as the coverage ends. With individual life insurance, however, you are the policy owner, and so your contract does not end when you quit your job or change your employer. You can continue owning the policy as long as you stick to the payments.
2. Medical underwriting
Individual life insurance is mostly medically underwritten. In this case, you are likely to qualify for lower premiums if you are a non-smoker and are in perfect health. Unfortunately for group life policies, they mostly come with no medical underwriting, and if they do, it is minimal. As a result, you are likely to pay the same rates regardless of health status.
In group life, the coverage amount is usually a multiple of your income. If you get the policy through an association, the coverage is a standard amount. In individual life, conversely, you choose the coverage that you want based on your needs and that of your dependents. Hence, the coverage amount is not fixed.
4. Premium guarantee
Individual life insurance premiums are either guaranteed (in the case of term life insurance) or flexible (in case of universal life insurance). A guaranteed premium means you pay a specific amount for a specified period while a flexible premium changes over time. When it comes to group life, premiums are not guaranteed. They are solely based on the employer’s experience. In this case, if the insurance company raises the rates, the employer passes the burden to the employees.
Provided that you pay your premiums timely on an individual life policy, the insurance coverage continues. In contrast, group life coverage ceases when you get fired or resigns. Though some group life policies have the portability (right to move with the plan) option, it’s often accompanied by strict rules and exclusions.
Group life insurance can be canceled either by the insurance company or the employer. As a result, there is an excellent level of uncertainty when it comes to coverage. Individual life, on the contrary, cannot be canceled by your insurance company. The only way to be ineligible for the benefit is defaulting in your premiums.
Both policies have exclusive benefits which differentiate them from each other. Group life insurance, for example, entitles you to income-based tax-free benefits and the freedom to add coverage for your dependents. Individual life insurance, on the other hand, allows you to choose a coverage that is tailored to your individual needs and budget.
Group life and individual life insurance are different from each other and so understanding the difference is necessary when looking to choose between them. Hopefully, the elaborate guide above has answered all the questions you had about the two policies.