Group life insurance: Understanding coverage and options
Learn about group life insurance policies, including SGLI, VGLI and employer life insurance, and how they can differ from individual coverage.
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York
About one in four working age Americans only carry life insurance through their employer. While having some life insurance in place is better than not having any, group- or employer-provided life insurance policies come with tradeoffs you may need to consider.
There are also special considerations depending on whether you're a service member or civilian — in case you change jobs.
Video Transcript: Group life insurance
- Video duration: 2 minutes 25 seconds
Intro: Elapsed time 0 minutes 0 seconds [00:00]
What do I need to know about group life insurance?
Employers often offer life insurance to their employees. This is known as group life insurance. And for nearly 30% of Americans, it's the only type of life insurance they have.
While having something in place is better than not having any, there are some drawbacks to group life insurance policies that you should think about.
Group life policies can be similar to term: Elapsed time 0 minutes 24 seconds [00:24]
What type of coverage is it?
Most group life policies are like term life insurance. They don't gain cash value, and they have a limit to how long they last. Coverage ends when you leave your employer.
How much does it cost?
Most employers will pay part of your coverage for a group life policy. For example, they could offer a multiple of your annual income or a fixed amount, like $50,000. Some employers let you choose additional coverage that you pay for.
Know what makes group life insurance different: Elapsed time 0 minutes 54 seconds [00:54]
How does my group policy compare to an individual policy that I buy myself?
Group policies are not very customizable, and the amounts might not be enough to cover everything you want to protect.
On the other hand, you can tailor an individual life insurance policy with additional options and benefits to meet all your needs.
What to expect if you change employment: Elapsed time 1 minute 12 seconds [01:12]
What are my options if I change jobs?
In most cases, your life insurance stays with your employer. This is the biggest drawback of group life insurance.
However, some plans let you convert your coverage to an individual policy when you leave. These individual policies are typically guaranteed issue, which means you can't be denied coverage. Also, you can expect your policy rate to be higher.
If you choose to find your own individual policy after you leave your employer, most insurance companies will require a medical exam and base your premium on your age and health. Then, you'll have a fixed rate for the length of your policy.
Group life insurance shouldn't be your only coverage: Elapsed time 1 minute 49 seconds [01:49]
Group life insurance should be part of your overall life insurance plan, but not your main source of coverage. It may not be enough to fully protect you and your loved ones, and it isn't a long-term solution if you change jobs or retire.
Adding an individual life insurance policy lets you get flexible coverage that fits your family and your lifestyle — no matter where you work.
We're here to help. Review your life insurance needs and get a quote by calling 800-531-LIFE (5433) or by visiting usaa.com/life.
Description of visual information: [Visit usaa.com/life to learn more or call 800-531-LIFE (5433)
This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.
Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations and contractual terms and conditions. Each company has sole financial responsibility for its own products.
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Read on for some commonly asked questions about group life insurance.
How does group life insurance work?
Most group life insurance policies are similar to term life insurance. Group life insurance doesn't gain cash value and has a limited coverage period, which usually is the duration of your employment.
In most cases, group coverage has fewer or no underwriting requirements than individually owned life insurance that you would purchase from a separate insurance company.
Ultimately, if you were to die during your coverage period, the proceeds from your employer-provided life insurance policy would pay out to your beneficiaries.
What's military group life insurance?
Servicemembers Group Life Insurance (SGLI) and Family Servicemembers Group Life Insurance (FSGLI) are low-cost group coverage options for eligible service members and their families.
SGLI offers up to $500,000 of life insurance and provides additional benefits for traumatic injuries via the Traumatic Injury Protection program. It's only available to active-duty service members, but spouses and children can be covered by FSGLI in $10,000 increments, up to $100,000.
If you meet all the requirements for SGLI, you'll automatically be signed up for coverage, though you can adjust your benefits as needed. If your spouse is in the military and qualifies for SGLI, he or she can sign you and your children up for FSGLI. Neither policy type requires you to go through a medical exam or underwriting process.
SGLI ends when you leave the military, but veteran service members are eligible for Veterans Group Life Insurance (VGLI), another group life insurance policy that can be issued in increments of $10,000, up to $500,000.
How much does group life insurance cost?
This varies from employer to employer and depends on what's offered through your employee benefit options. Most employers who offer group life insurance will pay for a portion of their employees' coverage. Coverage is usually a multiple of the employee's income, like two years of income, or a fixed amount, such as $50,000.
Some employers offer the option to purchase additional group life insurance as part of their benefits, up to a certain limit or factor of the employee's annual income. If you purchase additional coverage, your rate is the same as your peer employees. Group rates are usually favorable for young adults, but costs can rise as you age.
To calculate your group policy costs compared to a privately owned policy, take the monthly premium cost and divide it by the amount of insurance units your policy provides — the amount of coverage divided by 1,000.
For example, if your policy costs $30 a month and has a $300,000 death benefit, you have 300 units, which comes out to $0.10 monthly per unit. This is called "cost per thousand."
When you compare life insurance costs, you'll also want to consider the differences between policy types. Group coverage usually ends if you change jobs, while individual policies aren't tied to your employment.
Also, be mindful of the coverage types you're comparing. Most individual life insurance policies have a guaranteed period in which the death benefit and the premium costs don't change. However, the premiums on some term insurance, like annual renewable term insurance, may increase every year as you age.
If you have SGLI or FSGLI coverage, the monthly premiums are automatically deducted from your base pay. Both policies are relatively affordable, as is Traumatic Injury Protection coverage. For $500,000 in SGLI and TSGLI coverage, you'll pay $31 per month — $30 for SGLI and $1 for TSGLI.
If you add FSGLI coverage, you'll incur an additional cost of up to $4.50 for those younger than 35, though your rate will increase every five years.
What options do I have with a group policy compared to an individual policy?
Group life insurance plans are usually basic. Some benefit plans may offer the option to purchase insurance on a spouse or on your children, which would have its own premium costs.
Group policies are not as customizable and may not be adequate to meet your needs.
On the other hand, individual life insurance policies can be customized through various riders or additional contract options and benefits that are added to your policy.
Your life will change in the future, and so will your need for life insurance. Options may be built into your policy to help you change the type or amount of insurance you have. Most term life insurance policies contain a conversion option that allows you to change either a portion or all your current coverage into a cash value policy like whole or universal life insurance.
What are my options when I change jobs?
In most cases, your group life insurance stays with your employer and not with you. This is the biggest drawback of group life insurance — especially because the median job tenure for an American worker is about four years.
You don't want a gap in your life insurance coverage between jobs. There's also no guarantee that your next job will offer the same benefits you have now.
Some group life insurance plans allow policyholders to convert their group policy to an individual policy. These new policies are typically guaranteed-issue, meaning you can't be declined for them. This can be beneficial in cases where qualifying for traditional life insurance is a concern.
Alternatively, you can acquire individual life insurance outside of your employer. Most policies require you to go through medical underwriting, but you'll have the ability to tailor the plan to your specific needs. You'll also have the potential to save money compared to a non-underwritten policy.
Individual life insurance policies take your age and health into consideration to determine your premium rate. Once acquired, your rates are typically fixed for the guaranteed periods of your policy.
What happens when I leave the military?
Your SGLI usually ends 120 days after you separate from the military or retire from active duty. But as a veteran, you'll still need life insurance. Your SGLI makes you eligible for VGLI, which offers term life insurance in $10,000 increments, up to $500,000 in coverage.
Your coverage amount under VGLI is based on how much SGLI coverage you had when you left the military. However, if you feel you need more coverage, you can increase your life insurance by $25,000 every five years until you're 60.
If you enroll in VGLI within 240 days of leaving the military, you won't need to undergo a medical exam or take a health questionnaire. If you sign up after that 240-day period, you may need to go through underwriting.
Service members who separate with duty-related health issues sometimes struggle to find or afford individual life insurance. If that sounds like you, VGLI can be a great option, because you can sign up without a medical exam.
But if you're in good health, individual life insurance coverage may offer better terms and more affordable rates.
How can USAA help?
It's unlikely you'll remain with the same employer for decades — and it's possible that when you switch jobs, your new employer won't offer the same benefits, including group life insurance. That's why USAA believes that group life insurance should be only one part of your overall life insurance plan — not your primary source of coverage.
Regularly review your life insurance needs — not just the amount of coverage for your situation, but also the period in which you expect to need life insurance. USAA's life insurance professionals can answer your questions and help you weigh the benefits of individual life insurance policies.
When it comes to SGLI, we advise service members to maintain the full amount of SGLI or TSGLI coverage during your time in the military. That's likely more affordable than individual life insurance, given the risks during your military service.
USAA also designed life insurance product features with your service in mind — term life insurance policies that include the Military Protection PlusSee note1, 2 rider at no additional cost. The rider gives you the option to replace some or all the SGLI you lose as a result of military separation or retirement, even if you're disabled. It also includes a traumatic injury benefit with up to $25,000 of protection.