Group Life Insurance vs Individual Life Insurance: what’s the difference?

Employee life insurance, death in service, group life insurance, or however else you might refer to it, is a popular benefit offered by employers around the globe. If you are looking at a job that offers group life insurance, this might get you thinking about what sort of life insurance cover is best for you.

But all life insurance policies are the same, right? Let us take a look at some of the similarities and differences between group and individual life insurance policies.

Similarities

Payout

The core of both insurances is the same – it is a contract between the insurer and policyholder that is paid towards each month. Upon death, a set amount of money will be paid to your chosen beneficiaries.

No exclusions

With both group and individual life insurance, it doesn’t matter how you die. You don’t have to die in a certain way or a certain place in order to be covered, and you are still protected if you are on maternity or paternity leave. However, some individual life insurance policies may exclude claims for suicide for a short period to reduce the risk of fraudulent claims.

Differences

Have to be in employment

For group life insurance, you have to be in employment with the business that offers you the policy in order to make a claim. If you leave the company, even if you are retiring, then your insurance cover will cease.

Not based on health

You do not need to undergo a medical examination or answer medical questions in order to be covered on a group life insurance policy. This means that some people who have illnesses preventing them from getting an individual life insurance policy can still be eligible for group life insurance. Everyone pays the same as the risk of a claim is spread out over the whole group of people insured.

Calculated on salary

With individual life insurance, you get to choose the level of cover that you will receive, and thus how much will be paid out in the event of your death. However, group life insurance is based upon your annual salary. Though your salary might increase, in turn increasing your insurance benefit, you will not be able to change the level of benefit your beneficiaries will receive in any other way.

Employer controlled

Whereas individual policies are controlled by the individual, group policies are controlled by your employer. This means that the employer is liable for paying the premium, handling the admin, and keeping details up to date. However, this also means that it is up to the employer to make the claim on your beneficiaries’ behalf in the event of your death.

Set up in trust

Group life insurance is always, by default, set up in a trust, meaning that it does not count towards your estate, and thus is exempt from inheritance tax. However, only some individual life insurance policies are set up in trust as an optional extra.

Final thoughts

Overall, whether you opt for individual or group life insurance depends solely on your personal circumstances. With this information in mind, you will be in a better position to make a well-informed decision when the time comes to invest in life insurance.

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