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Group Life Insurance

Name: Group Life Insurance
Creator: Savvy
Published: 2022-12-16T16:42:21+10:30

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Written by , updated on July 19th, 2023

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If you’re a member of a union or employed by a larger company, you may be covered by a group life insurance policy. However, before you settle on this as your sole source of cover, it’s worth understanding exactly what group life insurance is and how it works, which you can find out about right here with Savvy.

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What is group life insurance and how does it work?

Group life insurance, as the name suggests, is a type of life insurance offered in Australia designed to cover a group of people, rather than one single person or a couple. This essentially consists of purchasing a bundle of policies in bulk from an insurer, which makes group life insurance pricing cheaper overall than buying a larger number of policies individually. The volume of policies being purchased also means you generally won’t be required to provide information about your situation, with cover instead being general in nature and based on a set of assumptions.

This type of policy is typically more suited to being offered by employers running a company (who make this insurance available to their employees) or an organisation such as a union (who offer cover to their members). A common example of a group insurance policy in action is the coverage you receive from your super fund, as they take out a vast number of policies in bulk and offer it at a low price to its members.

How the policy’s premiums are paid will depend on the arrangement you have with your employer or union. Many business owners will offer this as part of the overall employment package, meaning they take on the full burden themselves, while others will deduct payments from their salaries (known as salary sacrificing). The latter option can be appealing to employees, as it can be a cheaper form of life insurance compared to purchasing a policy for yourself.

What types of coverage does group life insurance offer in Australia?

Under a group life insurance policy, you’ll be able to access the same main types of cover as you would under any other standard arrangement. These include:

Life cover: term group life insurance offers a lump sum payout if you pass away or are diagnosed with a terminal illness
Total and permanent disability (TPD) cover: offers a lump sum payout if you become permanently disabled and are unable to work again
Trauma cover: also known as critical or terminal illness cover, this offers a lump sum payout if you’re diagnosed with a serious illness or suffer a major injury, such as cancer or a loss of limbs
Income protection cover: offers an ongoing monthly benefit worth up to 75% of your salary and can offer a partial benefit if you return to work in a reduced capacity

However, because these policies are purchased in bulk and are cheaper, it also means they generally offer less coverage and fewer additional benefits to individuals. This is an important consideration if your sole life insurance coverage comes from your super, employer or union, as it’s crucial to assess whether you have adequate insurance.

In some cases, you may look to take out more than one insurance policy to give you the cover you need. If you have a particular condition which isn’t covered by your policy or need a greater payout to support your family, it’s worth comparing your life insurance options with Savvy to help you find an individual policy which can offer the protection you’re looking for.

Types of life insurance

Term life cover

Life cover can pay a nominated beneficiary a lump sum if you’re diagnosed with a terminal illness or pass away. This type of insurance can provide your immediate family or another loved one some financial assistance to cover funerals, medical costs and day-to-day expenses.

Income protection cover

If you’re injured or too sick to work for an extended period, income protection insurance is designed to help you focus on your recovery. You can be covered for up to 70% of your usual wage for a chosen period, such as five years or up to age 65, depending on the level of coverage you buy.

Total & permanent disability cover

This type of insurance is designed to offer cover to those who are permanently disabled by injury or illness and are no longer able to work. You can choose to take out cover for an inability to work in your current job or in any role suited to your qualifications.

Trauma cover

Trauma insurance is a type of policy which provides you with a lump sum payment in the event of a critical illness or major accident. The conditions eligible for claims will be outlined in your insurer's PDS, but can include cancer, heart disease, severe head trauma and cardiovascular disorders.

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The pros and cons of group life insurance in Australia

PROS

Cheaper than standard life insurance

Because of the nature of the policy purchases (being in bulk), group life insurance pricing is likely to be cheaper and may be entirely free depending on your agreement with your organisation.

More accessible for those with health conditions

Those who suffer from pre-existing conditions which may otherwise discount them from life insurance can access coverage via group insurance due to its general nature.

Simple process to access cover

It’s typically very easy and convenient to arrange for your cover, as you’ll have done so through your employer, super or another organisation (often automatically).

CONS

Lower maximum payouts

If you’re relying solely on group life insurance, you’re likely to find that the maximum payouts or ongoing income replacement you can receive are lower than on individual policies.

May not cover your specific health needs

A group life insurance policy won’t offer tailored coverage to people, as there isn’t much scope for you to give detailed information about your situation and health.

Fewer benefits typically available

You may also find that there are fewer features made available by a general group policy, while exclusions may also be greater in some cases.

Common questions about group life insurance

What’s the difference between group and family life insurance?

While group life insurance is a collection of individual policies taken out and offered to employees or members of an organisation, family life insurance is a single policy or a joint one shared between a couple where cover for their children can also be added. You may not be able to add protection for your children under life insurance offered by your super or employer, but it’s worth checking the fine print carefully to see if this is the case.

Will my cover under group life insurance remain if I change jobs?

No – if your life insurance is offered by your employer under a group arrangement and you depart the company, your coverage will be cancelled and won’t follow you to your new job. In this situation, you’ll need to take out a new policy or continue to rely on the one provided through your super when you start a new job.

Can I claim my group life insurance premiums as a tax deduction?

You can in some cases – any life insurance premiums from a policy taken out through your super can be claimed as a tax deduction (though this will typically be done for you by your super fund). However, other insurance won’t be able to be claimed on your tax return (aside from income protection insurance, which may be able to be claimed). If you’re an employer who’s taken out a group life insurance policy, you’ll generally be able to claim all premiums on tax, though fringe benefits tax (FBT) may be applicable. You should consult with a financial professional if you have any questions about what you should and shouldn't be claiming on your tax return.

Do I have to have a medical if I take out an individual life insurance policy?

No – like under a group insurance policy, there isn’t always a requirement for you to undertake a medical exam. However, if you’re buying a policy individually, you’ll have to answer more questions about yourself, your lifestyle and your current and past health situations.

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Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

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