Should You Buy Into Group Term Life Insurance at Work?

Group Term Life InsuranceIf you can buy group term life insurance at work you should almost certainly do so.

There are of course a few exceptions to this (and I'll explain what they are).

But chances are pretty good that buying group term life insurance is a no-brainer for you.

It's about the easiest and cheapest term life insurance you can buy.

How Does Group Term Life Insurance Work?

If your employer offers group term life as a benefit, you can obtain the coverage once you are on the payroll for some period of time. This time frame varies from company to company and you should check with your employer.

For most companies, that exclusion period is 90 days but it might take up to a year before you are eligible to buy in.

The premiums are automatically deducted from your paycheck so it's nice and easy. Typically, the premiums associated with the first $50,000 of coverage are not included in your taxable income. But the premiums for any additional life insurance are considered taxable income. Don't complain about that. This is a very good thing.

Why? Because under current tax code, if the deduction is made pre-tax, your family would have to pay income tax on the benefit should they collect. It's simply a far better deal to pay the miniscule tax on the premium rather than have the death benefit slashed by 40% or more because of the income tax if you fall off a cliff.

Is Group Term Life Less Expensive than Buying it On Your Own?

In most cases, yes and there are a number of reasons for this. First, the insurance company doesn't incur a huge selling expense when you buy group insurance. When people buy an individual policy, the insurance company often pays the insurance agent up to 100% of the first year's premium. That's a lot of cabbage.

But with group term life, the insurance company doesn't pay a high commission every time a new person signs up. That saves them money and it translates into much lower premiums for you. Also, group term is easy to administer on an annual basis and that produces even more cost savings.

But the biggest cost savings stems from the group element of the policy. You see, in most cases, groups contain a hodge-podge of people. Old, young, sick and healthy. Everyone pays a blended rate based on the group as a whole.

That means if you are older and have a few health challenges, you might find it very expensive to buy your own term life insurance. But you'll get that coverage much cheaper with a group policy because the insurance company doesn't price the policy based on you alone. They price the policy based on everyone in the group. Even if you are young and healthy, the group policy might still be cheaper than getting your own policy because of the other cost savings I already mentioned.

What Do You Have to Do to Qualify?

For the most part, all you have to do to qualify is collect a paycheck and be able to fog a mirror. Depending on the employer you can buy this life insurance without having a medical exam or face a lengthy underwriting process. You may have to answer two or three health-related questions but that would be it. And if you pass this mini-test, you're in. In some cases, you'll be able to get coverage that you otherwise could not obtain privately.

When Group Term Life Insurance Doesn't Work

In every case I've ever looked at, group term works out better than the private alternatives. But it never hurts to get a quote for your own coverage just to make sure. If you happen to be really fit and work with a number of older sicker people, an individual policy might be less expensive, but probably not.

Should You Ever Buy Your Own Term Life Insurance When Group Term is Available?

Yes. It often makes sense to have your own policy in addition to group term life insurance. First, you have to consider how secure your job is. If you change jobs, your insurance might be portable (you might be able to keep it and pay for it privately) but the premiums are sure to jump. And since you don't know for sure if your next employer will offer group term life, you might be better off by having some life insurance you have control over.

Next consider if the group plan allows you to buy all the life insurance you want. If you need $1,000,000 in term but your employer only offers up to $500,000, you need your own policy.

For most people, group term life insurance is the way to go. It may not solve all your insurance needs but it's usually the least-cost way to take a big chunk out of the problem.

Does your employer offer group term life? Are you taking advantage of it? Why or why not?

This post was written by Neal Frankle. He is a Certified Financial Planner in Los Angeles and he is the creator of, one of my favorite personal finance blogs.

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Last Edited: July 24, 2017 @ 2:28 pmThe content of is for general information purposes only and does not constitute professional advice. Visitors to should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.