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Pros and Cons of Employer-Provided Life Insurance in Canada

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Written by Baggio Ma

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Life insurance is a topic that not many Canadians want to talk about, but it is essential that we do. Some Canadians are part of a group life insurance plan that is paid for by their employer. This could be a benefit if the worst-case scenario were to happen unexpectedly. 

But does employer-provided life insurance in Canada leave you underinsured? The advantages are clear, but there are also some downsides that you should know. 

This article will discuss the pros and cons of employer-provided life insurance plans for Canadian workers. 

What is Group Life Insurance for Employees?

Group life insurance is a workplace benefit that is provided by an employer to its employees. The employer will usually pay the premiums on the insurance policy, so all you will need to do is sign the paperwork or sign up through your HR department. 

It is a very convenient way to have life insurance and helps keep your spouse or family protected. Group life insurance is also very affordable and is much cheaper than buying your own life insurance premium with an external insurance company. 

Types of Group Life Insurance

Employee Basic Life

This is the most common type of group life insurance available in Canada. It is a standard life insurance premium paid to the employee’s beneficiary if they pass away. 

The payment is usually either a flat coverage amount or salary-based. If it is a flat coverage amount, the benefit paid to the beneficiary is a set amount according to the plan. When it is salary-based, it is usually a multiple of the employee’s annual salary. 

Dependent Basic Life

Dependent Basic Life insurance is a policy for employees in the event that one of their dependents passes away. For the purposes of this type of insurance, this usually includes children or a spouse.

The benefit of Dependent Basic Life insurance is usually much lower than any other policy. It is a nominal amount, usually a few thousand dollars, to cover funeral costs for the employee. 

Supplemental Group Life Insurance

Supplemental group life insurance can be added to an employee’s existing group life insurance policy at their own cost.

Employees can purchase supplemental insurance to add more enhanced coverage that will provide a larger benefit to their beneficiary. It can also include life insurance for a spouse or dependent. 

What Does Group Life Insurance Cover? 

Group life insurance in Canada usually just covers the passing of the employee that worked at the company. It does not cover the death or injury of any dependents or spouses. 

Most group life insurance policies will also have clauses that mitigate a potential benefit. This includes things like pre-existing conditions, dangerous activities, and suicide. Check with your group life insurance policy to see what exactly is covered by your employer. 

Group Life Insurance Benefits

What are the advantages of signing up for group life insurance through your employer? Aside from getting the life insurance policy itself, there are some other benefits of doing this through your work.

Coverage is Guaranteed

When you sign up for a group life insurance policy, you do not have to take any medical tests. This means you will be automatically approved for this coverage even if you have a serious medical condition. You might have to provide a medical test if you choose to sign up for supplemental coverage. 

This is an excellent option for those who already suffer from a medical condition. Many conditions are grounds for rejection of regular life insurance policies, so this could be the only coverage for which some people will qualify. 

It is Simple to Apply For

Group life insurance is easy for employees to apply for; in most cases, they are automatically enrolled when hired. If not, it is usually a simple enrollment process with your human resources department to set you up with your policy. 

It is Free or Low-Cost for Employees

Another benefit for employees is there is little to no cost for enrolling in a group life insurance policy. External life insurance policies can cost you an arm and a leg. While the group life insurance through work is free, it does have a much lower benefit payout to your beneficiaries. 

You May Be Able to Increase Coverage if Needed

As we mentioned, you can add supplemental life insurance for you or your dependents to your group life policy plan. Of course, this will come at a cost, but for many Canadians, having that peace of mind is worth it. 

It Can Be Enough If You Are Young and In Good Health

If you are young and healthy, then your group life insurance will likely be more than enough at this stage in your life. Once you hit middle age or inch closer to retirement, then you can consider adding on a more robust life insurance policy. This will always be according to your personal risk tolerance. 

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Disadvantages of Group Life Insurance

Coverage is Usually Capped at a Low Amount

The main downside to group life insurance is that the coverage is usually a very low amount, especially compared to regular life insurance policies. It is nice that it is a free benefit, but just be warned that it might not be enough to support your dependents in the event of your passing. 

If You Lose Your Job You Lose Coverage

Group life insurance is connected to your job status. If you quit, are laid off, are fired, or even retire, your group life policy will no longer be in effect. This is one incentive for an employee to stay with the company.

There is Limited Choice in Insurance Types or Providers

This is especially so in Canada, where there are only a handful of major life insurance providers. You are not likely to have the same optionality as you would with a non-work life insurance policy. 

Your Plan May Not Cover Your Spouse

Group life policies usually do not cover your spouse or any of your dependents. You will usually need to add supplemental life insurance to have them covered. 

Premiums Are Not Fixed

There is a chance that your premiums could rise in the future. This means that if you pay for your group life insurance, you could see higher costs. This is especially true for supplemental life insurance policies where premiums could rise with your age or other factors. 

Should You Get Supplemental Life Insurance?

For those who want the peace of mind that their loved ones will be taken care of, supplemental life insurance is well worth the cost. It is also beneficial for those who have medical conditions or for those who are getting on in years. 

Overall, adding supplemental life insurance to your group life policy is cheaper than buying a policy through a life insurance company. Buying supplemental life insurance is a choice you need to make depending on your financial situation and risk tolerance. If you want to cover your bases in the event of your passing, then it makes sense to add on the supplemental policy. 

FAQs

What is the difference between group life insurance and life insurance? 

Group life insurance is offered as a benefit through an employer. The premiums are usually paid for by the employer, but the coverage is much lower than with normal life insurance. If you buy life insurance through an insurance company, then you will need to pay the premiums yourself. 

What is included in group life insurance? 

Group life insurance usually just provides a benefit in the event of the policyholder’s death. Some generous group life policies will include a funeral cost for a spouse or dependent, but usually, you will need to pay an added premium. 

Who is the beneficiary of group life insurance? 

When you are enrolled in your group life insurance plan, you can name a beneficiary. This person can be a spouse, dependent, or family member. Upon your passing, the beneficiary will receive the benefit from your group life insurance. 

At what age does group life insurance stop?

Group life insurance generally stops at the age of 70, but it depends on your employer. Usually, it will stop at the age of retirement as you are no longer an employee of the company. Some plans will let you transfer this to an individual life insurance policy with the same provider. 

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Author

Gravatar for Baggio Ma
Baggio Ma

Baggio Ma has written extensively on financial topics over the past several years. His work experience in the private, public, and not-for-profit sectors has led to a special interest in personal finance-related topics. Baggio has written for several Canadian finance sites such as PiggyBank and Tech Daily. Baggio holds a Bachelor of Arts degree from the University of British Columbia and a Master of Public Administration Degree from the University of Victoria.

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