I have been offered group life insurance at work. It seems like a good deal.
Is this the best alternative for me?
There are two types of coverage under a typical group benefits program.
1. Non-optional - which simply means that everyone gets the coverage whether they want it or not.
Almost every group benefits plan provides a basic amount of life insurance on the employee and a token amount of coverage for the spouse and children of the employee. Non-optional just means that it is provided along with all the other benefits in the group plan and you can not say that you don't want it. Your coverage is usually based on a multiple (1 times or 2 times) your salary or can be based on a specified amount such as $25,000 or $50,000. A spouse is usually covered for $10,000 or $25,000, and your children are usually covered for $5,000 or $10,000. Plans differ quite a bit so you will want to check your employee coverage booklet to find the exact amounts of your coverage. If you do not have one ask your human resources contact for one.
2. Optional Term Life Insurance which you choose to add to your coverage and pay for.
You can sometimes add life insurance coverage for you and/or your spouse (usually in multiples of $25,000) at a specified rate per unit depending on your age and smoking status. You must qualify for the coverage in most group plans, just like you must qualify for an idividual insurance plan. You will be required to answer medical questions and you can be turned down if your health warrants it. The rates vary from plan to plan so you have to check with your plan administrator to get the rates.
Most of the time the rates will change every five years so your premium is going to change frequently, especially if you have spousal coverage as well.
Compare premiums.
Most group benefit plans offer optional life insurance on a shorter term than most individual insurance policies do. Your premiums will increase every five years under group insurance while many individual policies will remain the same for 10, 20 or even 30 years. When comparing look at the cost of coverage over the time period that you will need it, and not just for the next year.
I have seldom found optional group life coverage to have a lower premium than an individual policy. I realize that group insurance offers some serious cost advantages when the benefits offered require everyone to have the coverage (non-optional). This gives most people the false impression that the optional benefits (such as life insurance) are the same. It is just not the case.
The better your health the more you will save by applying for individual coverage.
When you apply for individual coverage there are three different categories. Standard which is comparable to the group ratings. Preferred which will lower your premiums by about 15%. Preferred Plus which will save you 35%.
You can get quotes to compare rates here.
Prevent Having To Change You Policy Every Few Years
What if you leave your employer or the employer changes plans or drops the plan entirely.
You generally have two options when you leave a group insurance plan.
1. You can convert the policy to a permanent insurance plan offered by the company that provided your group plan. These "conversions" tend to be very expensive and are meant to provide coverage to those employees who are uninsurable and can't get coverage otherwise. Because of this the cost is going to be extemely high. Smaller group plans tend to offer the worst conversion terms.
2. You can apply for an individual policy if your health is still good. You still have the options of getting individual coverage simple by applying for an individual plan.
You can avoid the hassle latter by getting an individual policy now rather than waiting until you are forced to. Besides - the question remains - Will you actually do it? If you are laid off the tendency is to delay the decision to replace the coverage you have lost.
Be Aware Of Coverage Limitations
Group insurance coverage often have exclusions so make sure you review these exclusions to determine the possible consequences. Not all coverage is of equal value. Is there a criminal offence exclusion (impaired driving), hazardous sports exclusion, pilot exclusion, etc. How does this affect your personal situation? Individual life insurance policies seldom have these exclusions.
If there is any doubt as to your ability to purchase insurance it would be wise to apply for an individual policy over optional group insurance. Group insurance is not very well underwritten and any unusual situations are often declined without very much effort to investigate on their part.
Don't go without coverage just because the group insurer turned you down. Many times you will be approved by an individual insurer even though your group insurer turned you down.
Group insurance is convenient as your premiums are deducted from your pay check. For some people this is enough reason to purchase it at work rather than on an individual basis.
Please remember - the more convenient it is to get the coverage the more likely it is to have drawbacks and cost more.
Call if you have questions 306-821-1620
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