Term Life vs Group Life: What the Difference Actually Costs You
Group life is free, useful, and rented. Term is cheap, portable, and owned. Most families should have both, and most only have one.
These two get confused constantly, and the confusion is expensive.
Term life, in one paragraph
Term life covers you for a set period; usually 10, 20 or 30 years, and pays a death benefit if you die inside it. It is the most coverage per dollar of any kind of life insurance, by a wide margin. It builds no cash value and it expires at the end of the term.
That expiry is the design, not a flaw. It is exactly why the premium is a fraction of permanent coverage.
Where it fits: a mortgage with years left on it, the years children are at home, a business loan, income replacement during the season when your income is carrying the most weight.
Worth asking about: a Return of Premium rider, which refunds premiums if you outlive the term. It costs more. Sometimes it is worth it and sometimes it is not, and the answer depends on your numbers rather than on a rule.
Worth asking about even more: a conversion rider. It lets you convert to permanent coverage later without new underwriting, locking in the health rating you hold today even if your health changes. It is the most valuable and least explained feature in this business, and it usually costs nothing extra to have.
Group life, in one paragraph
Group life comes through an employer or association. It is often free or nearly free, requires no medical questions, and is genuinely useful coverage. Keep it.
Three things to understand about it:
It is typically one to two times salary. Set that against a mortgage, the years until your children are grown, and the income your household would lose, and the number is usually smaller than people picture.
It almost always ends when the job does. Resign, get restructured, retire; and it leaves with the badge. It is rented, not owned.
Employer-paid coverage above $50,000 creates imputed income. The cost of the excess shows up as taxable income on your W-2. Small, but people are surprised by it.
The comparison, without a winner
| Group life through work | Your own term policy | |
|---|---|---|
| Cost to you | Often nothing | Low, and fixed for the term |
| Who owns it | Your employer | You |
| If you leave the job | Usually ends | Nothing changes |
| Sizing | Set by a payroll formula | Set by what you actually owe |
| Medical questions | None | Usually yes |
| Convertible later | Rarely | Frequently |
Neither is better. They do different jobs. Group coverage is a benefit that comes with employment; a term policy is an asset you own.
What most families should actually do
Keep the group coverage, it is free and it is real. Then own a term policy sized to what you genuinely owe, so that the number does not depend on where you work.
Two questions decide whether you need to act:
- What is the actual number on your group policy? Not "some through work." The figure.
- Does it survive you leaving? For most plans, no.
If the figure holds up and it is portable, that is good news, and we will say so. If it does not, that is the gap worth closing first.
The order, before anything else
If your employer matches your 401(k), look at it first and take it if it makes sense for you. Free does not always mean best. Then protection. Then everything else.