Employer–Sponsored Group Term-vs-Individual Term Life Insurance
Whether your employer group term life insurance plan is non-contributory or contributory (see the article Group Life Insurance) it usually will be an easy and affordable way to purchase term life insurance. However, there are still several reasons to consider buying individual term life insurance. The following table compares employer sponsored group term insurance versus individual plans.
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GROUP TERM / INDIVIDUAL TERM LIFE COMPARISON
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Subject:
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Group Term Life |
Individual Term Life |
| Conversion Option
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When available, conversions are limited to plans of the insurer which were chosen by the employer.
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Conversions are limited to the plans offered by the insurer; but life insurance company is chosen by the individual policyowner.
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| Cost
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Non-contributory group insurance plans are offered by and paid for by the employer.
Contributory group life plans usually require about 75 % employee participation and often a minimum employer contribution of 25 %. Note: Younger employees that are healthy can often purchase individual term life cheaper than through group life plans.
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Cost will vary according to health rating, face amount, plan type, and life insurance carrier. |
| Dependent
Coverage
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Spouse’s death benefit is often limited to about $ 10,000.
Children’s death benefit is often limited to about $ 5,000. |
No limit (about ten or twenty million dollars if income or need justifies amount) on spouse rider. Children riders or individual policies can go up to $ 500,000 or more with justification.
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| Employee
Death Benefit
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Death benefit often chosen by employer. On many group term life plans, the employee death benefit is as low as $ 10,000 to $ 20,000. Many Blue Shield and Humana plans offer the employer choices from $ 10,000 to $ 100,000.
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Individual death benefit is chosen by policyowner. |
| Evidence of Insurability
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Late enrollment or increased coverage amounts may require answering health questions, but rarely are exams required.
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Normally requires full underwriting, including health questions and exams. |
| Maximum
Coverage
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Typically, $ 10,000 to $ 20,000 with smaller employers; one times salary with medium to large companies or government plans; and occasionally up to $ 500,000.
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Individual death benefit is virtually unlimited (based on salary, balance sheet, net worth, dependents, ect. – up to $ 20 million with many insurers). |
| Life Insurance Company
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Life Insurance Company is chosen by employer. | Life Insurance Company is chosen by individual. |
| Portability of Insurance
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Typically ends with employment, unless it is converted to a permanent life insurance plan. When offered, it normally reduces significantly at age 65, and coverage ends at certain age, such as 80.
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Ends when premiums are no longer being paid, or when term contract terminates; typically to age 90 or 95. |
| Premium
Payment
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Premiums are paid by employer, or by the employee monthly or twice per month through payroll deductions.
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Premiums are paid by the individual, through various payment modes. See article: Premium and Payment Options.
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| Taxes | According to IRC section 79, ‘the first $ 50,000 of group-term life coverage’ is not taxable. However, if the policy is carried by the employer, the premium for the coverage that exceeds
$ 50,000 will be taxed as income. See IRS Publication 15-B.
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Typically paid with after-tax dollars. Death benefit is normally tax-free. |
