The difference between Group and Individual insurance

Group life insurance is typically offered as a benefit through your employer or membership in an association. Group life insurance can fill some of your life insurance needs, but probably doesn’t meet them all. Most often it is an inexpensive way to supplement an individual life insurance program.

Group policies typically offer two or three times your annual salary in coverage – some or all of it paid for by the employer or offered as supplemental, employee-paid coverage. Supplemental coverage is relatively inexpensive at younger ages, but rates increase with age.

Factors that distinguish group life insurance from individual insurance policies include:

Guaranteed coverage amounts

Under group life insurance programs a certain amount of coverage is often “guaranteed” – that means you won’t have to answer questions about your health or take a medical exam to qualify for the coverage. For amounts of coverage beyond the guaranteed amount, you may need to answer a few health questions and provide some details about your medical history. If the amount of coverage you’re requesting requires a medical exam, it’s typically a much simpler process than the full physical required for an individual insurance policy.

Group premium rates

Group insurance underwriters use what is known as an experience approach when assessing the risks involved with a group life insurance policy. Rather than basing rates on an individual’s lifestyle habits and health factors, they group people together and set rates based on the risk of the group as a whole.

Administration and billing systems designed for groups

The insurance company issues a life insurance policy to the employer or association – individuals insured under the policy typically receive certificates of insurance, which outline their rights under the policy. The insuring company or a third party administrator typically handles the details of who in the group is covered and for what amount and provides a customer contact center to answer individual insureds’ questions about their coverage.

Electronic funds transfer or payroll deduction

Automatic billing options such as these make paying premiums painless. You don’t have to worry about writing out a check every month.

Portable or convertible coverage

When you leave the group for whatever reason you may be able to keep your coverage, without providing proof of your good health, and pay premiums directly to the insurance company. Premium rates may be higher than those paid by active employees. If you lose eligibility for coverage, you have the option to convert group coverage to an individual policy with the issuing company at the current rates for that type of policy.

Increasing coverage

Many group plans allow an increase in coverage following a family status change. Often, there will be a certain amount you may increase by answering questions about your health or having a medical exam. Sometimes increases in coverage are automatic, as when you receive an increase in salary. Consult your specific benefits plan for the qualifying family status changes accepted.

Family status changes may include:

  • marriage
  • divorce
  • birth or adoption
  • death of dependent or spouse
  • a change in employment status of an employee or an employee's spouse, such as the termination or commencement of employment
  • going from part- to full-time employment
  • retirement
  • a significant change in employee benefits
  • the entitlement to benefits under Medicare of an employee or an employee's spouse
  • buying a home  

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