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Life Insurance
Employer-Sponsored Insurance
Most employers, even the smallest ones, offer their employees some form of life insurance benefit. For some companies, the benefit is a flat amount ($50,000, for example); for others, the benefit is a factor of the employee's salary (like 2 times annual salary). In either instance, if your employer offers you a life insurance policy through the company, you'll most often find that this insurance is a type called Group Term Insurance (Group Term). Group Term gets its name from the fact that coverage needs to be offered to a "group" of employees (often a minimum of 10). It offers a number of advantages to the employee, but also has a number of disadvantages.
The Advantages
For many people, a big factor in purchasing life insurance is the cost of the annual premium. If you did a very quick comparison of Group Term and many other types of life insurance, especially individual whole life insurance, it might appear that the Group Term is much less expensive. For a young employee, the initial yearly cost of Group Term might be pennies on the dollar when compared to whole life insurance. This is because the Group Term offers pure insurance protection only, and no potential to build any cash value. We'll see in a moment why this feature might make Group Term, in the long run, much more expensive.
Another advantage of Group Term is that it is typically written on a non-medical basis. That is, the employee does not have to take a medical exam and provide "evidence of insurability" - coverage is typically guaranteed. In many instances one's employer will cover at least a portion of the cost of the insurance.
Finally, when you retire, your plan might offer you the opportunity to convert your Group Term to a whole life or universal life policy without any evidence of insurability.
The Disadvantages
The first disadvantage can be found in the name - "term" insurance. That is, it does not last forever. If you leave your job, for any reason, you will lose it. Sometimes you can convert the term insurance into whole life or universal life, but then you will begin paying premiums based upon your age at the time of conversion. Also, because this conversion privilege is often guaranteed, the rates on these policies tend to be higher than they might be if you had gone through the normal underwriting procedure.
A second disadvantage, which can lead to term insurance ultimately costing more than whole life insurance, is that the premium typically changes every few years, even if you work with the same employer until you retire. If you do not ultimately convert the policy to a whole life or universal life policy (and then pay very high premiums), you may have nothing left.