Group Life Insurance: Enough Coverage or Do You Need A Top-Up? (2023)

Peer reviewed by
Erik Heidebrecht
, Certified Life Insurance Advisor
In This Article

Key takeaways

  • Group life insurance is a type of coverage that workplaces offer employees as part of a benefits package.
  • Coverage amounts are generally one to two times your annual salary, or capped at $100K. 
  • If you have a family, mortgage or debt, group life insurance is likely not enough coverage.
  • With term life insurance, you can top up your group policy with customizable coverage based on your situation and needs.

Group life insurance: working definition

Group life insurance is a type of coverage that many businesses offer their employees as part of a benefits package. Your employer negotiates a single group contract that covers all employees at your workplace. 

“All this means is you are less of a risk to an insurance company when you are part of a group, so the cost can be significantly less.”

This is different from what’s called “individual life insurance”, a term used for anything that isn’t group life insurance, where the individual is the one that owns the policy. 

Coverage for your life insurance will typically be within one to two times your annual salary. This is the amount of money your family would receive from the policy if you were to pass away.

And you’re in good company if you have group coverage; around 62% of Canadians have life insurance through their employer.

More of an audiovisual learner? Here’s a quick explainer video on how group life insurance works:

5 starter facts about your group life policy

Boiling it down to some of the essentials, here’s a quick starter pack on you should know about group life insurance.

Group life insurance

1. Group is a type of life insurance offered as an employee benefit.

Life insurance coverage is provided by your workplace, having negotiated a contract to cover the whole group. This either included as a part of your employee health benefits or unbundled. 

2. Group life insurance generally provides coverage that’s 1x to 2x your salary.

This means that your beneficiaries are entitled to a lump sum payout of that amount if you pass away while you’re working at your place of employment.

Not sure if that's enough coverage for your financial safety net? Use our life insurance calculator; we'll even tell you if you don't need coverage at all!

3. Employer controls policies and can change providers or coverage amounts.

They can switch providers, end coverage, or reduce coverage amounts without consulting the group. 

4. If you leave your employer, your coverage will end. 

In essence, you are no longer part of the “group” if you are fired or resign from your post. 

5. Some group policies have conversion options, but are often pricey.

Providers tout “conversion privilege” for their policies because you can take your policy with you if you leave your place of employment. But it’s generally more affordable to get new coverage outright instead. 

Speaking of pricey, what does this coverage cost you?  

How much does group life insurance cost?

Group life insurance premiums will cost around $27.47, the industry average for the top ten providers in Canada, finds Benefits Canada. 

Some workplaces fully cover the premiums for company life insurance, so you get coverage at no cost. Otherwise, your employer deducts the premiums from your paycheques to cover your part of the policy.

There’s a huge range between premiums between the top provider and the provider in the ten spot – $74.63 and $3.43 respectively. So the amount you pay will depend on the life insurance company that your workplace decides to go with.

The 3 most common types of group life insurance

The different types of group life insurance plans include term, universal and variable coverage. But spoiler alert, one of these is more common than the rest:

1. Group term life insurance 

Most employers offer group term insurance (this is probably the one you have!). This is a policy that annually renews and only provides a death benefit within a specified term. It’s the most affordable option of the different types of group life insurance. 

2. Group universal life insurance 

This option allows policyholders to build up cash value in addition to a death benefit. For this reason, it is more expensive than group term life insurance.

3. Variable group universal life insurance  

Variable group universal life is only different from group universal in that it offers investment opportunities alongside the cash value. This means that policyholders can potentially up their returns with this coverage, but there’s also a risk of policy collapse. 

When group life insurance is enough (and when it isn’t)

Group life insurance is likely not enough on its own if you have a family that relies on you financially. Since this type of policy only provides a one-time payout equal to the amount of twice your annual salary your loved ones will only get limited financial support.

Company life insurance coverage

The average Canadian with an individual policy has around 3.5x more coverage than someone with just a group policy in place. 

We’re using the average Canadian salary of $61,119 and average individual coverage of $423,000 to demonstrate the gap in coverage amounts. 

To dig deeper into where this gap comes from, think about how much life insurance you need to support your family during a tough time. 

Tally up your current financial obligations (things like mortgage balance, debts, childcare costs, tuition, etc.). Then you’d subtract your liquid assets, which include things like savings and investments. 

Life adds up quickly, so it’s easy to see how a group policy alone isn’t enough to support a family post-loss. Life insurance advisor, Erik Heidebrecht elaborates on the role that group plays as a part of your financial toolkit: 

“Group life insurance is a nice perk, but it’s something to build on. It’s a good starting point but usually not enough for most families.”

Unsure about your coverage needs? Our life insurance calculator takes the guesswork out of the equation. No strings attached, no commitment required. 

Example scenarios: when is group life insurance enough?

Below are example scenarios to help you better identify if you and your family would benefit from individual life insurance in addition to your group policy. 

Scenario 1

  • Demographic: 35-year-old woman
  • Smoker: No
  • Annual salary: $110K
  • Group coverage: $110K
  • Mortgage: $400K
  • Consumer debt: $10K
  • Additional coverage needed? Yes, around $100K in top-up coverage, which would cost $9.78/month for a 20-year term with PolicyMe.

Scenario 2

  • Demographic: 40-year-old man
  • Smoker: No
  • Annual salary: $122K
  • Group coverage: $245K
  • Mortgage: $500K
  • Consumer debt: $5K
  • Additional coverage needed? Yes, around $250K  in top-up coverage, which would cost $26.26/month for a 20-year term with PolicyMe.

Scenario 3

  • Demographic: 31-year-old woman
  • Smoker: Yes
  • Annual salary: $95K
  • Group coverage: $190K
  • Mortgage: $590K
  • Consumer debt: $0
  • Additional coverage needed? Yes, $400K in top-up coverage, which would cost $37.34/month for a 20-year term with PolicyMe. 

Scenario 4

  • Demographic: 31-year-old man
  • Smoker: No
  • Annual salary: $80K
  • Group coverage: $160K
  • Mortgage: $0
  • Consumer debt: $4K

Additional coverage needed? No, group coverage is enough.

So when does group life insurance actually cut it?

There are cases where families can adjust to a single income without needing much support, beyond group life insurance. 

For example: if your partner has a large income and you've both managed to save a good chunk for retirement. Or if you don’t have any financial dependents or large debts. 

But remember, you'll no longer have your group policy if you lose or change your jobs. So even if you don't need a lot of coverage, it’s probably worth considering getting a policy that's separate from your work.

Group vs individual life insurance: a side-by-side comparison

There are some key differences between individual life insurance and group life insurance that you should note. But for starters: “Term insurance covers an individual for a certain period of time,” explains Priest. 

“Group covers an individual while they are part of the group.” 

Here’s a point-for-point comparison between the two types of coverage: 

Group vs. term life insurance

Individual and group life insurance differ in a few notable ways: 

  • Who owns the policy
  • How much coverage you get
  • The cost of the policy
  • What happens to the policy if you leave your job
  • If a medical questionnaire or medical exam are required
  • Whether the policy is a taxable benefit

Individual life insurance: is customizable, based on your financial situation and needs. You decide how much coverage you need and have complete control over your policy. 

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 low cost or is free altogether. 

Curious to see how much an individual policy might cost you? 

PolicyMe has some of the most affordable individual term policies in Canada. Using technology, we made the life insurance process more efficient (and less pricey!), and pass those savings back to you.

Three more questions you may have on group life insurance

Group life insurance normally isn’t a topic that people have an insatiable curiosity about, but here’s a deeper dive for those of you that are weird like us. 

1. Can I cash out or withdraw from my group life insurance policy?

You can’t cash out from your group life insurance policy. You can, however, withdraw at any time – that is, unless your employer automatically covers you. This will depend on your particular workplace’s policies around withdrawal. 

Priest sheds more light on this topic; “In some cases, you can transfer a group policy to an individual plan when you leave your job. But there is no cash value in a group policy.” 

2. Should you pay for optional extended coverage?

Paying for optional extended coverage is a personal decision. It’s a form of extended group coverage that you pay for to add to your basic group life insurance.

“I don’t typically recommend this,” says Priest. 

“It’s better to put that money toward an individual life insurance policy if you qualify. If you can’t get an individual policy, then you may want to look at topping up your group coverage if your family will be greatly impacted without your income.”

3. 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.

Next steps: getting the life insurance coverage you need

  • Evaluate your living situation: If you have a family, mortgage or other debt, group life insurance on its own may not be enough to support your loved ones in the event of your death.
  • Calculate your coverage needs: Look at your income, debts and group coverage. From there, you’ll be able to identify how much individual life insurance coverage you need.
  • Make a shortlist of insurers: Identify companies you're interested in reaching out to and get quotes to compare.
  • Begin your application: Apply to the one that meets your needs the best! If you're denied, you can try another insurer.
  • Read and sign your policy!

Getting a quote for term life insurance can be easy. In a few clicks, you’ll get an idea of how much a term policy might cost.

And when you’re ready, you apply online in 20 minutes or less (without meetings or small talk). 

FAQ: Group life insurance coverage

Who are the top 5 group life insurance companies in Canada?

The top 5 group life insurance companies in Canada are as follows: 

  1. Manulife
  2. Canada Life
  3. Sun Life
  4. Desjardins
  5. SSQ/Beneva

This ranking is based on the sum of insured premiums that the companies provide coverage for, as reported by Benefits Canada. 

What is the contestability period for group life insurance?

The contestability period for group life insurance is usually about two years. This is the amount of time in which an insurance company has a legal right to challenge an individual’s coverage if that person provided incomplete or false information during their application.

How long does group life insurance last?

Group life insurance lasts as long as the company or employer pays the premiums on behalf of the individual, and the person remains a part of that group. This means that the individual must be employed to receive coverage.

A group life insurance policy will no longer cover an individual who has retired, resigned, been laid off, or gotten fired.

How does employer life insurance work?

Employer life insurance works through your company and is only available to a group rather than individuals. It is the same as group or company life insurance.

Typically, employers will pick a policy for their business that covers all eligible employees. You do not directly pay the premiums for this type of life insurance. Your employer does. The insurer would provide your beneficiaries with a payout should you pass away.

You need facts, not fluff. Our goal is to provide you with honest, trustworthy information to help you make informed decisions. While our content is created with insurance experts, it is for educational purposes only and should not be considered definitive professional financial advice. 

We recommend seeking the counsel of a licensed financial advisor before making any decisions regarding insurance or personal finance. 

Laura McKay

COO & Co-Founder

About the Author

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