Group Term Life Insurance Premiums and Rates

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Group Term Life Insurance Premiums and Rates

Group rates can differ significantly from individual rates. This is because on a group plan, the insurer is underwriting a whole group of people—anywhere from ten to thousands—and can spread its risk over an entire group of people. However, for extremely healthy individuals, it may be cheaper to get individual term life insurance than group insurance, as you will just be paying for your own health risks, not the risks of an entire group.

Term is cheaper

Term life rates are cheaper than whole life rates because when you purchase a term life policy, you are only insuring your life and will get no cash value should you cancel the policy. Whole life coverage is expensive because you will receive a cash benefit if you cancel the policy. Your whole life policy premiums fund underlying investments—generally conservative investments—that back up that cash value and, if the investments perform well, can even provide part or all of your premium payment. However, the fees associated with these investments can cut your returns, so they may not do as well as you expect.

How rates are determined

When assessing a group for term life insurance, the insurance underwriters look at statistics for similarly sized groups to assess the age at which members of the group are likely to die, necessitating a benefit payout. Rates can increase based on a number of factors, including the performance of the insurance company’s investments and the make-up and size of the employee group. Premiums for any employee contribution are typically paid through payroll deductions, while the employer may pay its obligation either in a lump sum or on an ongoing basis.