What’s the difference between getting life insurance from my employer vs on my own?

Some employers offer life insurance as a benefit of employment, typically a guaranteed issue whole life insurance policy. This type of policy has advantages and disadvantages which should be carefully weighed before you make a purchase decision. More commonly, you may choose to pick up the employer sponsored coverage as well as additional life insurance policies meant to serve specific purposes or meet your family's life goals.

For those who suffer from pre-existing medical conditions or have other factors which prevent purchasing an individual life insurance policy, an employer-sponsored policy may be the only option. Because the risks of insuring someone with medical concerns, even such common preexisting conditions as asthma or diabetes, many insurance companies will not underwrite individual policies. But because of risk mitigation based on group participation, even those with preexisting conditions are eligible for group policies.

Buying a group life insurance policy will usually limit the amount of the coverage, such as $100,000. Additionally, some employer-sponsored life insurance plans have specific payout rules, such as an accidental death or dismemberment policy. This type of policy will only pay out if you are killed accidentally, but have the advantage of paying for the loss of one or more limbs as well, giving the policy owner a safeguard against disabling injuries.

The premiums for a group insurance policy are lower than those for individual policies. Just as coverage can be extended to a wider range of applicants because of the statistics of group underwriting, the premiums paid are also lower. In addition to facing a reduced amount of risk, insurance companies which sell group insurance are also aware that many participants will drop the coverage long before it matures, which means that maintaining the group insurance fund is less expensive for the insurer, a savings that is passed on to the policyholders.