What Is The Difference Between Individual Life Insurance and Group Life Insurance?

Individual life insurance is generally bought and paid for by yourself (or a relative) directly thru an insurance agent or insurance company. However, group life insurance is generally provided by an employer, union, or association. Below I will list some of the advantages and disadvantages of each.

Individual Life insurance Advantages

  • The individual policy owner controls the policy.
  • Unlike with group life insurance policies, the individual life insurance policy is “portable." (Meaning regardless of your employment status, a death benefit will provided as long as the contract is in force when the insured dies.)
  • The individual can choose the type of policy (permanent or term), the length of the coverage, the amount of coverage, the insurance carrier providing the death benefit coverage, and/or if they want any optional riders, etc.
  • Rates can be shopped around. Depending on the individual, the individual life insurance rates may actually be less expensive than group life insurance. (A better individual rate may depend on the insured’s health and age.) 

Individual Life Insurance Disadvantages

  • For most type traditional policies the insured must go through the application process, including a medical exam to get approved. (However there are other types of individual life insurance such as simplified issue or guaranteed issue policies, that don’t require a medical exam although they are more expensive.)
  • Depending on the insured’s health after getting a medical exam, they may not qualify for traditional individual life insurance. (Again guaranteed issue is available for those that do not qualify for traditional individual life insurance, but their premiums will be at a higher cost.)

Group Life Insurance Advantages:

  • Many times an employer will cover the premiums, offer as an employee benefit, or will offer an optional benefit that the employees may purchase if they desire.
  • Many group policies don’t require a medical exam or individual assessment and don’t take into account the health issues of any particular individual. The rates are based on the makeup of the entire group of employees or members covered. That more lenient underwriting lets people who have minor medical conditions get coverage they might not have qualified for on their own, or for which they would have had to pay a higher rate. However because insurers generally assume that the pool of people applying for such coverage is not the healthiest, they charge more for everyone in the pool. (Not requiring a medical exam and individual approval may or may not be an advantage, depending if you have health issues and would not qualify for a traditional individual policy on your own. However if you are healthy, individual life insurance may be less expensive in that case.) 
  • You may be offered premiums at a group rate. (However it is still a very good idea to check with an independent agent that can shop premium rates for an individual policy across a large number of insurance companies to compare which type policy has the better rate and is best suited to your needs. Group rates are not always the least expensive. Also keep in mind there may be other drawbacks to a group policy besides price. See below.) 

Group Life Insurance Disadvantages:

  • Portability of Insurance: Generally most group life insurance coverage terminates when you leave your employer, union, or association. (This very important to keep in mind when purchasing. Since if you get very ill, or need to leave your employment for any other reason, you may lose your life insurance coverage at that time and may not qualify for new individual life insurance due to health issues.)
  • You have may have little or no control over the plan design or benefits provided.
  • Coverage options may be limited and not sufficient to meet your dependents’ needs.
  • Employer, union, or association (depending your situation) is the owner of the policy and can change, or even discontinue the group policy at any time.
  • Another big disadvantage between the extra coverage offered by many employers versus an individual policy is the number of years that rates remain in effect. Many group policies set their premiums in five-year age bands. Meaning for example, if you buy the policy when you’re in your early thirties, the premium will increase when you reach age 35 and then jump again at 40, again at 45 and so on every five years. But if you buy a policy on your own, you can lock in your premiums for 20 or 30 years.

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Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334. 

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