Group vs. Term Life Insurance: Is Coverage Through Work Enough? (2022)

Peer reviewed by Tobin Tuff, Certified Life Insurance Advisor
In This Article

Is comparing group vs. term life insurance even necessary when you have coverage through your employee benefits plan?

While it’s a nice perk, the coverage you get through a group plan is often not enough to protect your family if something happens to you. Read on to find out whether your situation requires more coverage through a term life insurance plan.

What is group life insurance?

Group life insurance is a type of life insurance available as an employee benefit. Your employer negotiates a single contract covering everyone who’s eligible at your workplace.

In most cases, group life insurance gives you coverage that’s 1x to 2x your annual salary in the event you pass away. About half of Canadian households have group life insurance coverage.

How does group life insurance work?

Group life insurance works through your employer. They negotiate a policy to cover all eligible employees at your workplace. Your employer pays the premiums to the insurer, who, in turn, will provide a payout to your beneficiaries in the case of your death. 

Some workplaces fully cover this benefit, which means you’re receiving coverage at no cost. In other cases, your employer will deduct a corresponding amount from your paycheques to cover the insurance premiums. However, group life insurance payouts are small and, on their own, are unlikely to be enough to adequately protect your family if you pass away.

Here's a quick video explainer on how employee group life insurance works:

Term life insurance vs. group life insurance

The advantage of term life insurance is that they provide customizable coverage based on your situation and needs. In contrast, group life insurance is a one-size-fits-all product that is negotiated and provided by your employer.

This doesn’t mean group life insurance is bad. It provides you with some protection at a small cost and having some coverage is better than none at all.

Term life insurance is a type of policy that you purchase on your own, based on your specific coverage needs. First, you apply through an insurer, providing them with information about your age and health history. Then, you select how long you want coverage for and the amount of coverage you want to buy.

Based on this information, the insurance company will provide you with a quote for your premiums—the amount you pay monthly to keep your policy active. Once you enroll, and as long as you continue to pay your premiums, you’ll be covered under your term insurance policy.

If you’re interested in more comprehensive coverage, you’ll need to get your own policy. During the application process, you can subtract your group life coverage from your total life insurance needs and pay for the difference. For example, Certified Life Insurance Advisor, Tobin Tuff explains: "Group life insurance is a nice perk, but it's something to build on. It's usually not enough but it's a good starting point."

Pros and cons of group life insurance

Like all insurance products, group life insurance has some advantages and disadvantages.

Pros:

  • It’s inexpensive, or even free, depending on how much of the premium your employer pays.
  • You’re automatically enrolled through work—as long as you’re working for an employer that offers group life insurance and you qualify for their benefits, you have coverage
  • If you’re eligible for group benefits through your employer, you’re covered regardless of age or health conditions
  • Having group life insurance means you already have some coverage in place, so you can purchase a smaller policy on your own to be fully covered.

Cons:

  • Group life insurance tends to offer minimal coverage, at 1x or 2x your salary and often the payout is capped at a certain amount, like $100k.
  • If you leave your job, you’ll no longer be covered under your employer’s group life benefits.
  • You could be in a situation where you don’t need life insurance at all and your employer requires you to pay for part of the monthly premiums with your group life insurance plan.

Recommended reading: Term vs. Whole Life Insurance

Is my group life insurance really enough?

Group life insurance is not enough if you have a partner, kids, or financial obligations like a mortgage and debt. "Group life insurance coverage is often capped at a relatively low amount, like $100k, which won’t go far to cover your family’s expenses if you pass away." says Tobin.

Here's an example of how life insurance supports family expenses:

Consider your housing expenses, such as your mortgage payment, property tax, utilities, cable and WiFi. You may not realize it, but these fixed expenses make up more than 30% of your monthly expenses! This means almost a third of your family’s monthly expenses will remain the same after you pass.

We know what you’re thinking: “That still leaves 60%. What are those expenses for?”

If your family is like most, you probably spend this piece of the pie on food, transportation, clothing and entertainment (like vacations or takeout). We estimate that about 60% of these costs will remain for families left with a single income.

When you put all of this together, you can see that your family will still have to cover 60%–70% of your monthly expenses after you pass. So one or two years of income replacement probably won’t be enough for your family’s financial security.

On the other hand, life insurance might not be worth it if you’re single with no dependents or significant debts. In this case, group life insurance could be enough.

PolicyMe offers some of the most affordable life insurance rates in Canada. This way, you won’t overpay for unnecessary coverage and your family will still have the safety net they need.

Disadvantages of group life insurance

The main disadvantage to group life insurance is the limited coverage. Your salary, or even a multiple of that, is unlikely to be enough to support your family and help them plan for the future. The payout could be even smaller if the coverage is capped at your workplace.

And unlike term insurance plans you buy on your own, you can’t customize your group life policy and have no control over it. 

So if your employer decides to stop offering this benefit, or if you leave your job, your coverage is over.

According to our recent survey, 53 percent of Canadians who only have group life insurance coverage are between the ages of 30 to 50. This is the same segment of individuals most likely to have dependents and significant liabilities, who need additional coverage.

Are there some cases where your group life insurance may cut it?

Having group life insurance may cut it if your spouse or partner has a large income and you’ve both managed to save a lot for retirement. In this situation, you may not need much life insurance protection. So there are certain situations where families can adjust to a single income without needing much life insurance protection.

However, remember that if you lose your job or change companies, you’ll no longer have your group life insurance coverage. So even if you don’t need a lot of life insurance, it may be worth considering purchasing a policy that’s separate from your work.

Tobin elaborates on this: "It's safe to rely on group life insurance when you have longevity with your employer, like an Ontario teacher. If you're not likely going to switch careers or lose access to their life insurance benefits through work, it can be okay to rely on that policy."

Recommended reading: how to choose term length

In summary: Group life insurance is often not enough on its own

Group life insurance can act as a part of your life insurance plan, providing you partial coverage at a low cost, but you’ll need to buy a term life policy on your own to cover the gap.

  • Group life insurance usually provides a payout of 1 or 2x your annual salary, through your employer benefits
  • For individuals with a partner and/or children and financial obligations such as a mortgage or debt, group life coverage will not be enough to protect your family.
  • If you’re laid off or resign from your position, you won’t retain your group life coverage.

FAQs: Group vs. term life insurance

How much does group life insurance cost?

How much group life insurance costs depends on the terms of the policy. Sometimes, your employer will fully pay the monthly premiums on your behalf, so you’re essentially getting group life insurance coverage for free.

In other cases, you may be required to pay a portion of the premiums, which are taken directly from your paycheques.

Recommended reading: how much term life insurance should you buy?

What happens to my group life insurance when I retire?

When you retire, the group life insurance benefits you have through your work will end, much like any other health or wellness benefits you enjoy through your employer.

Unfortunately, one of the biggest disadvantages of group life insurance is that you lose your coverage when you leave your job, whether you’re laid off, resign, or retire. If you want your life insurance coverage to be independent of your employment status, it’s best to purchase your own term life policy. Our list of the best term life insurance policies in Canada is a great place to start.

Laura McKay

COO & Co-Founder

About the Author

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