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:
Boiling it down to some of the essentials, here’s a quick starter pack on you should know about group life insurance.
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.
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!
They can switch providers, end coverage, or reduce coverage amounts without consulting the group.
In essence, you are no longer part of the “group” if you are fired or resign from your post.
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?
Group life insurance premiums will cost around $27.47, the industry average for the top ten providers in Canada, finds Benefits Canada.
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 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:
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.
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.
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.
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.
The average Canadian with an individual policy has around 3.5x more coverage than someone with just a group policy in place.
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.”
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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.
Additional coverage needed? No, group coverage is enough.
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.
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:
Individual and group life insurance differ in a few notable ways:
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.
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.
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.”
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.”
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.
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).
The top 5 group life insurance companies in Canada are as follows:
This ranking is based on the sum of insured premiums that the companies provide coverage for, as reported by Benefits Canada.
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.
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.
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.
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We recommend seeking the counsel of a licensed financial advisor before making any decisions regarding insurance or personal finance.