What is group life cover?

Key takeaways

  • An employer may offer you life and disability cover – and possibly severe illness and funeral cover – as part of a group scheme.
  • This cover may be a lot cheaper than cover you take out in your own name.
  • Some group schemes offer cover up to a free cover limit without underwriting (medical questions and tests). Beyond this you have the option to take out more cover with some limited underwriting

Many employers offer their employees employment benefits that include membership of a retirement fund and group life cover.

Offering these benefits allows employers to compete on salary and benefit packages and the financial security the benefits offer can keep employees loyal to the company.

Group life cover that you enjoy as a benefit of being an employee can be much cheaper for you than taking out your own life and disability cover.

This cover is offered to all employees at an average rate based on the spread of ages across the employee group and the industry in which you work, instead of the factors that life insurers use to price a policy you take out in your own name based on your unique risk profile. Read more What does it cost to insure your life against death, disability or severe illness?

Group life premiums also do not increase with your age.  Only if the spread of ages of the group as a whole increases do group life premiums increase.

How the benefits work

Group benefits usually include life and disability cover typically based on your salary – for example, a lump sum benefit equal to two or three times your annual salary.

Some employers offer income protection cover against disability instead of a lump sum benefit.

Some offer a funeral benefit and/or severe illness cover.

A basic group life benefit may be offered with a “free-cover limit”, which means that the benefits up to the free cover limit are provided without the need for you to have medical tests or answer medical questions. This can be hugely beneficial if you are struggling to get cover without a loading on your premiums or exclusion from cover for a medical condition you have.

In addition to this, you may be able to take out additional cover beyond this limit for an additional premium based on how the life company assesses you for the risk of dying or becoming disabled.

Conversion option

If your employer has negotiated this, your group risk benefits may have a conversion benefit or continuation option, which allows you to convert your group risk cover to personal cover on the basis of some limited medical questions or tests when you leave an employer.

Having this option can be very valuable if you leave employment to become an independent contractor or start your own business, as you are guaranteed cover despite any health problems you may have. If you took out your own cover with underwriting, any conditions you have would be considered for exclusions or loadings.