Should I get life insurance if I’m covered through work?

It’s a good feeling knowing that you’re protected – whether by group life insurance paid for by your employer or perhaps coverage through a group or professional association you belong to. Because of this, you might assume, as many people in your situation often do, that you don’t need to look into any other insurance options. But the reality is…it’s usually not enough coverage.

Almost 39% of life insurance policies in Canada are through group term insurance. With such a large number of Canadians covered through their work, many are under the impression that it’s enough coverage for their family too. It’s no wonder they don’t know the intricacies of their group term insurance versus individual term life insurance.

It’s important you understand your work’s life insurance policy to make sure your family is fully covered. Let’s look into it!

What is group life insurance?

Group life insurance is a master insurance contract designed to cover a particular group of people, such as those who work for the same company or who belong to the same professional organization. The plan is owned by the plan sponsor (usually the employer or the professional organization) and offers life insurance coverage to the members of the group.

The coverage provides a lump sum of money (called the “death benefit”) to the family of the employee or plan member if they pass away. The coverage amount is typically based on a multiple of the plan member’s salary. For example, the plan benefit might be two or three times your annual income.

Do I need group life insurance?

Group life insurance is generally provided by workplaces as part of an overall employee benefits package in order to attract and retain talent. So, if you are offered group life insurance through your employer or another group, we would recommend that you sign up for it, especially if you don’t have personal life insurance coverage of your own yet.

What type of life insurance do employers offer as a group benefit?

Most employee life insurance is term life insurance. Although other types of permanent life insurance are also sometimes offered.

With group term life insurance plans, the death benefit is offered as a flat dollar amount, as a multiple of an employee’s annual salary (such as one or two times your annual salary), or a mix of both.

Additional insurance coverage offered by employers

Some employers also offer additional coverage, such as dependent life insurance. This death benefit from the employer’s life insurance plan is a one-time, lump sum payment in the event an employee’s dependent (child, spouse, etc.) passes away. The coverage amount for dependent coverage is usually $1000-$5000, to cover funeral expenses.

Another type of policy that’s usually in employee benefit packages is accidental death & dismemberment insurance. This usually covers death by accidental means (rather than natural causes) and dismemberment, which includes loss of the use of certain body parts (including limbs or eyesight).

Do employers pay for group term life insurance?

Most private employers will pay for a substantial, if not the entire, portion of the premiums for group life insurance. The only thing to note: the coverage offered is typically basic. This means there are no customization or riders built in. The cost of additional supplementary coverage is usually paid for by the employee.

Public service life insurance coverage also exists through the Public Service Management Insurance Plan. Employees must choose the basic plan first in order to be eligible for other types of insurance through the plan.

Are all employers required to offer life insurance as an employee benefit?

Offering group life insurance is completely optional for employers. However many workplaces will offer insurance benefits for employees in their personal benefits package. This helps employers to attract and retain new talent while also helping existing employees benefit from the lower rates of insuring through a group.

What are the benefits of group life insurance?

There are a number of benefits of group life insurance that make it an attractive option for those who are offered it through work or a professional association.

Affordability
An employer often pays for most – if not all – of the life insurance premium so there is very little or no cost to the member of the plan. If you do need to pay a portion of the premiums, they are usually less expensive. This is because the insurance company prices it on the basis of the underlying risk profile of the entire group as a whole rather than as an individual insurance applicant.

Convenience
It’s easy and convenient to sign up with only a small amount of paperwork and no individual underwriting. The payments are usually through payroll deduction, so no worries about policy lapsing because you missed your premium payments.

Limited underwriting
Most group term life contracts do not require any medical exam to be administered to the individual plan members. Members may be automatically or voluntarily enrolled in the overall group life insurance plan. However, an eligible employee may be required to go through medical underwriting, to establish good health in special circumstances such as when seeking an amount higher than the group coverage or when trying to rejoin the plan, after initially declining coverage.

What are the disadvantages of group life insurance?

Limited coverage
The group life insurance benefits are generally limited in coverage and are likely to be inadequate for your or your household’s needs. You will likely need supplemental coverage beyond the basic group life insurance plan offered by your employer.

Lack of control
Another disadvantage is that the plan sponsors (i.e. the employer or the organization) or even the insurance company can change the plan anytime they choose or even discontinue it altogether. Because you are sharing a plan among others in a group, it cannot be tailored to meet your own unique needs. There may be exclusions for medical conditions that you may have.

Limited Portability
Group life insurance is dependent on an individual’s affiliation with the group. Just because one particular job includes insurance, there’s no guarantee that the next one will. If you find yourself in a position where you need to purchase life insurance once you make a career change, your premiums are likely to be much higher by then as you are a little older and more expensive to insure from an underwriting perspective.

Taxation
Lastly, depending on how your employer structured the benefit fees, you might need to pay taxes on the payout.

What happens to my group life insurance coverage if I leave my employer?

Employer-offered life coverage is linked to your employment. This means it covers you and your dependents until your employment period ends—whether you quit or you’re fired by the employer.

Many employer-offered plans include an option to convert the group coverage to an individual policy, upon leaving the employer. However, the cost of conversion from group to individual coverage is significantly higher and most people tend to get new individual coverage at that time. Typically, only those individuals who may have pre-existing health conditions, and may find it hard to get individual coverage based on a medical exam, will take advantage of this conversion option.

Frequently Asked Questions

Does life insurance cover job loss?

No, life insurance does not cover job loss. It pays your beneficiaries a lump sum of money in the event that you, the employee, pass away. Job loss insurance is a separate insurance product.

Disability insurance provides income replacement (usually 60-80%) in the event that you are injured or ill and can no longer work. Usually, employee insurance policy packages include some type of short or long-term disability coverage, although they can be restrictive compared to individually purchased plans. And again, if you stop working for that company, you lose your coverage.

Does group life insurance end at retirement?

Yes. Group life insurance is dependent on your continued employment; therefore, at retirement, your group life insurance also expires. However, as mentioned above, you will typically have the ability to convert the group plan into individual coverage, without providing any evidence of good health. The conversion has to be requested within a limited period of time, usually 31 days. The conversion option is much more expensive since no evidence of good health is provided.

Are my dependents covered through employer life insurance?

Sometimes. Most employer-offered life insurance plans will allow an employee to extend coverage to also include their dependents, such as married or common-law spouse and dependent children up to a certain age, such as 21 years. But that’s not always the case, so check your policy documents!

Is group life insurance a taxable benefit?

Yes, employer-paid life insurance is considered a taxable benefit. With group term life insurance paid by the employer in Canada, the premiums appear on your T4 slip and are reported on your tax return as a taxable benefit.

Do I need individual term life insurance if I am covered through work?

The general rule of thumb is that you should carry 10-15x your annual salary as life insurance coverage. Generally, employer-provided life insurance may cover a few thousand dollars or in most cases one or two years of your salary. This means your family is only covered for a couple of years…then what do they do?

You’ll want your life insurance to cover your family’s living expenses, your funeral cost, their education fees, and more—it should provide financial security. The level of coverage offered through employer plans might not have that for you.

If you’re offered group life insurance, of course, you should take the maximum that you’re entitled to—at the end of the day it’s free (or almost free coverage). It’s a great first step! However, you should strongly consider purchasing additional life insurance coverage. Buying your own individual term life insurance gives you a choice in where your monthly premiums go.

What is individual term life insurance?

An individual life insurance policy is a contract between you and the insurance company – instead of getting life insurance through a group plan, an individual can purchase life insurance for themselves.

The most important aspect is that individual life insurance is portable. This means where ever you work, your policy follows. An individual term policy isn’t tied to a particular employer, group, or organization – so it stays with you until you decide to cancel it.

With insurance you buy on your own, you know what your premium rate is before you sign a contract and the insurance company can’t change it during the term. It’s also guaranteed, so the insurance company can’t cancel the insurance should you say, contract a terminal or critical illness down the road. Only you are able to do so. Most importantly, unlike group life insurance, individual term life insurance can be tailored to your specific needs.

Read more on exactly how term life insurance works.

The bottom line

Term life insurance provides the best and most comprehensive benefits for your loved ones and estate. As the reasons above outline, life insurance through group benefits, while great when you have them, is not a guarantee. For true coverage that transcends your current job and matches the flexibility you might need as your career evolves, buying additional life insurance is your best bet.

Read the honest guide to life insurance for more information about how individual life insurance works and try out our Life Insurance Calculator to see how much term life insurance you need.

The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail.  All rights reserved.

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