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Personal and Business Banking

Group Insurance

StreetWise Insurance Guide

Life rings
  • Summary
  • Article

Group Insurance versus Individual Insurance Plans

What is group insurance?

Group insurance is a single insurance policy that covers a specific group of people. Examples of groups include employees of a company, members of a professional organization, or alumni of a college. Many group policies include dependents of group members.

The purpose of a group plan is to spread the risk of claims over a wider group of people. For example, in a group healthcare plan, everyone pays the same premiums, but not everyone has the same claims. You will have a mix of healthy people that don't file claims and you will have some people with serious illnesses or childbirth. The insurance company tries to set rates for the group to cover the average amount of claims plus profit.

What is individual insurance?

Individual insurance is a single insurance policy that covers one person.

What are the differences between group and individual insurance plans?

Group policies are usually less expensive than individual policies, depending on health. Bigger groups may be given more favorable rates than smaller ones because a few large claims are less likely to wipe out expected profits. More established groups may get better rates than new ones because the insurer has more claims history to rely on. Most group policies guarantee to accept any member of the group. Group policies may provide more benefits. Your choice of services under group policies, however, is limited to what is offered.

Individual health policies are usually more expensive for fewer benefits. Individual policies are usually guaranteed renewable. Qualifying for many life and health insurance plans requires passing a physical exam. Depending on the type insurance, individual plans may enable consumers to tailor the plan to meet their specific needs.

Is there an exception to that rule?

Life insurance and Long-Term Care Insurance are a little bit different. The price of individual life insurance is closely related to a person's age, health, family medical history, and other risk factors such as obesity and smoking. In general, a younger person in great health with few risk factors will be able to purchase life insurance on their own for less than they can get it in a group. As a result, group life policies may have a disproportionately high level of people with higher risk factors. Group life policy rates often have that extra risk built into the rate everyone pays. It is similar for Long-Term Care insurance in which the cost of a policy is based on many things including the individual's age and health at the time of purchase.

What insurance is available as a group plan?

Insurance that can be offered under group plans include health, dental, vision, life, accidental death and dismemberment, short-term disability, long-term disability, prescription drug, long-term care, and dependent care.

Is group insurance only available through an employer?

No. You may be able to get group insurance through a professional organization, an alumni association, or other membership type organization. In some states, a self-employed individual may qualify as a group of one.