Group Life Insurance at Work vs. an Individual Policy

How workplace group life compares with a policy you own: cost, coverage limits, what happens when you leave a job, the IRS tax rule, and FEGLI and SGLI.

Life Insurance Knowledge · Last reviewed October 26, 2026 · 6 min read

If your employer offers life insurance, signing up during benefits enrollment is easy, the price is often low, and there may be no health questions at all. The catch is that workplace coverage is designed for a large group, not for your family's specific needs, and it may not stay with you when your job changes.

This guide compares group life insurance through an employer with an individual policy you buy and own yourself. It covers how group coverage usually works, its strengths and limits, what happens when you leave a job, the tax rule for larger employer-paid amounts, and the separate programs for federal employees and service members.

This is general information, not insurance, tax or financial advice. Your employer's benefits office can explain your plan's terms, and a licensed agent, tax professional or your state insurance department can help with your own situation.

How group life insurance through work usually works

The Texas Department of Insurance's life insurance guide (updated December 2025) describes group life as a perk some employers and other groups offer. It says most group life insurance is term coverage, the amount is often limited, and a basic group policy through your job usually has a death benefit equal to one or two times your annual salary. Pricing is based on the whole group rather than on one person.

Washington's Office of the Insurance Commissioner, in its consumer guide to life insurance (revised March 2026), adds that group life is typically purchased one year at a time and gives you very little control over the conditions of coverage.

Where group coverage shines

Easy access. The Texas guide says you usually don't have to answer health questions or take a medical exam unless you want more coverage than the basic group policy provides. That can make group coverage valuable if health problems make individual coverage hard to get.
Cost. The Texas guide says group coverage is usually cheaper than a policy you buy directly, and Washington's guide notes that employers may subsidize part of the cost.
Convenience. Washington's guide notes that employers can deduct your group life premiums from your paycheck with your permission.

Where group coverage falls short

The amount may not match your need. The National Association of Insurance Commissioners (NAIC) says in its Life Insurance Buyer's Guide (2026) that while you may have free or low-cost coverage through your employer, the death benefit usually is less than you need.
It is tied to the job. The Texas guide says coverage typically ends when you leave your job, and the NAIC warns you may not be able to take it with you.
Few guarantees. Washington's guide says group life does not typically guarantee premiums or renewal, and coverage applies only to members of the group.
COBRA does not help. The U.S. Department of Labor's worker guide to COBRA says that if a plan only provides life insurance or disability benefits, it is not covered by COBRA, so the federal continuation rules for health plans do not keep your life coverage going.

What happens when you leave a job

Before you leave, or as soon as you get notice, ask your benefits office or the insurer what options your plan offers and how long you have to act. Ask whether the plan lets you convert group coverage to an individual policy without new health questions, and whether there is any other way to keep coverage. Any option will come with a deadline, so ask early.

State law may give you specific rights. Washington's guide, for example, says that in Washington, if you leave a group life plan or your employer drops the plan, the law requires group life insurance to let you convert to permanent whole life coverage, at a higher cost. Converted coverage can be expensive, so compare it with a new individual policy if you are healthy enough to qualify.

Washington's guide also notes that term insurance can bridge a gap if you will be without group coverage for a while between jobs.

The tax rule for larger employer-paid coverage

Employer-provided group-term life insurance has a federal tax threshold. For 2026, IRS Publication 15-B says an employer can generally exclude the cost of up to $50,000 of group-term life coverage from an employee's wages. Under the same 2026 publication, the cost of coverage above $50,000, minus any amount you paid toward it, is included in your wages and shown on Form W-2 in box 12 with code C, using an IRS cost table based on age.

The same 2026 publication says employer-paid coverage on a spouse or dependent may be excludable as a de minimis benefit if the face amount is not more than $2,000. These rules explain why a line for group-term life may appear on your W-2. Ask a tax professional how the rules apply to you.

Federal employees and service members

Two federal programs work differently from private employer plans.

Federal employees: The Office of Personnel Management (OPM) says the Federal Employees' Group Life Insurance (FEGLI) program provides group term life insurance with no cash or paid-up value. In most cases, new federal employees are automatically covered by Basic insurance unless they waive it, and three forms of Optional insurance require Basic coverage and must be actively elected. OPM's FEGLI pages explain the options and premiums.

Service members: For 2026, the Department of Veterans Affairs lists Servicemembers' Group Life Insurance (SGLI) coverage up to $500,000 in $50,000 increments, with eligible members enrolled automatically. As of its October 2026 update, VA says that after leaving the military you can apply for Veterans' Group Life Insurance (VGLI) within 1 year and 120 days of discharge, or convert SGLI to an individual permanent policy within 120 days without proof of good health. Check VA's site for current rules before a deadline.

How to combine group and individual coverage

The choice does not have to be either-or. Start by estimating your total need, as described in our guide How Much Life Insurance Do You Need? A Step-by-Step Estimate. Then decide how much of that you are comfortable relying on group coverage for, knowing it could end with a job change, layoff or retirement.

For example, imagine an employee whose basic group coverage equals one year of salary and whose family needs several times that. The employee might count the group amount as a helpful extra, but buy an individual policy for the core need, since that policy belongs to the employee and continues regardless of where they work, as long as the premiums are paid. Washington's guide points out that waiting has a cost: you could develop a health problem that raises your rates or leads a company to reject your application.

Supplemental group coverage can still make sense, particularly if you have health issues that make individual coverage costly. Compare its price with individual quotes at the same amount, and read the plan's terms on portability and conversion.

Key takeaways

Group life through work is usually term coverage, easy to get and often low cost, but the amount is often limited.
Workplace coverage usually ends when the job ends, and COBRA does not continue life-only coverage.
Ask your benefits office about conversion or portability options and deadlines before you leave a job.
For 2026, IRS Publication 15-B says the cost of employer-provided group-term coverage above $50,000, minus what you pay, is added to your taxable wages.
Consider treating group coverage as an extra and owning an individual policy for your core, long-term need.

Sources

Our articles are general information, not financial, insurance, tax or legal advice, and we don't sell insurance or recommend specific companies or products.

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