The Difference Between Group and Individual Life Insurance

At some point, you will have the option to get life insurance through an employer or purchase a policy on your own. In either case, you’ll be presented with a conundrum: What’s the difference between group and individual life insurance?
Generally, employers provide group life insurance policies. They’ll either cover the premium or offer it as an optional benefit you can deduct from your paycheck. By contrast, an individual policy is one you purchase on your own, completely separate from your employment status. Of these two options, group policies tend to cost less initially, but you should consider the following before purchasing coverage.
The Benefits of Group Coverage
When you opt to purchase group life insurance, your employer is given a certificate of coverage and the policy covers you for anywhere from one to three times your yearly salary. As a result, you do not need to provide your carrier with documentation or go through a medical exam – you simply opt in. As a benefit for those with preexisting conditions, you get coverage based on your work status and tend to get lower rates than if you purchased coverage on your own.
Understanding Individual Coverage
On the other hand, individual policies require you to answer some medical questions and undergo an exam before you’re approved. Individual policies also come with more rate classes than group policies. As a result, someone considered fairly healthy – based on personal and family medical history – can lock in fairly low rates. As such, this type of individual coverage ends up saving you money in the long run.
Along with these factors, individual policies come with fewer coverage limits and are not based on employment – you can continue coverage regardless of where you work.
Calculating Rates
How rates are figured out and how they increase differ between group and individual policies.
For a group policy, preexisting conditions are factored in, so those individuals will likely pay less than the average individual rate. As a result, your company’s collective rates tend to be greater. Additionally, when you purchase group coverage, your rate increases every five years and your premium will likely be higher long term.
With individual coverage, premiums may stay flat for 20 to 30 years. As a result, a healthy person who purchases individual coverage in their 20s often ends up paying less than someone who opts for group coverage later in life.
Are you thinking about group coverage for your business or individual life insurance for yourself? Take a look at this video or give us a call at 203.729.5261 to find out whether group or individual life insurance makes most sense for your situation.