What are some disadvantages of a group life insurance plan?

Group life insurance, such as the life insurance available through your employer, has a few benefits, such as no medical exam and low, easy premiums payments. But there are also limitations to what a group life insurance plan can do for you, and how it works. Knowing the limitations as well as the benefits will help you get more from your insurance dollar, whether your policy is through the job or some other organization you belong to.

The first limitation of group life insurance is the fact that your policy is dependent on your being a member of the group. For instance, if you lose your job and you have employer-sponsored life coverage, your coverage ends as soon as your employment ends. In some cases, you may be given the option of continuing the coverage at the cost of higher premiums, but the most common result is simply a loss of the premiums you have paid into the plan.

Group life insurance is usually available in specific amounts, such as $100,000. This can be a big help to family members if you pass away, but may not be anywhere close to the full amount of life insurance you need to have. Group life insurance has these limits to help balance the risk of insuring people without medical examinations, keeping the cost of payouts down to a manageable amount without restricting access to the coverage for other members of the group.

Group life insurance is often sold as term life insurance coverage. If you die before the term expires, the policy will pay to the named beneficiaries, but if you outlive the policy, your premium investments are lost. Some policies will allow you to renew the policy or convert it to a whole life policy, but both options will involve higher premiums and a loss of everything you have paid into the policy up to the date of renewal or conversion.