ARE YOU PAYING TOO MUCH?
You just started a new career or been with a company for a while and open enrollment is around the corner. And now you have to decide whether to go with group sponsored life insurance policy or buy an individual life insurance policy. The key is to educate yourself on your options and make an informed decision. It could save tens of thousands of dollars over your working career.
EMPLOYER SPONSORED PLANS
Typically the employer contributes to the cost and these plans are issued on guaranteed bases. Most companies will offer 1 to 3 times your annual salary amount in the form of life insurance at no cost to you. For more coverage you will have to pay an additional premium which can be funded through payroll deduction. This is a great way to have some cushion in case of the unexpected especially when you don’t have to pay anything. In addition to that employers are given a certificate of coverage for the life insurance and they can add employees to it. Because of that you don’t have to go through a medical exam or provide medical records as you would for an individual policy. Your plan through work is given out on guaranteed basis, so this can be great for people with preexisting medical conditions. The overall convenience and ease of enrolling for your coverage makes this benefit seem like a “no brainer”.
Now that is where the pros end and you might be wondering why. That’s because group plans are not all that they are purported to be. Here are few reasons why they fall short. The group plans have rate increases every 5 years, limit the amount of coverage, may be more expensive and often are not portable. The rate increases occur because the insurance company will renew the contract every 5 years and it is very likely for them to renew with higher premiums. Also since the plans are offered on a guaranteed basis you as an individual may be paying more for all the people who have serious ailments. Another problem with this type of coverage is you cannot take the plan with you if you ever leave the employer. Coverage will just expire and you will have to get your own coverage which will be offered based on your current age and health. Some other minor issues are that there is no customization allowed. Things like adding riders and that anytime the employer wants to drop coverage you can be left without protection. This is concerning especially if you become uninsurable at one point or another. I think group plans are a good introduction to life insurance but you could be doing yourself and your family a disservice by only relying on employer life insurance plans.
INDIVIDUAL LIFE INSURANCE
An individual policy is the absolute best way to get adequate coverage customized to what you need and you can take it anywhere. Of course it does have its cons as well. The first one is that you will have to qualify medically to get approved for the coverage which usually requires a medical exam. The company will underwrite you based on your age, build, health conditions, family history and any dangerous hobbies. Unlike group coverage where it guaranteed issue with individual policy it’s best to get it when you are healthy. This is really the only negative to obtaining an individual policy that we have heard from clients. However, these hassles are dramatically easing in today’s technologically advanced environment. We have also found that the carriers with which we work will offer coverage even if you are not in perfect health.
The key is to work with an independent agency that has access to a myriad of insurance companies so you can apply with the one that is most likely to offer you coverage. The positive aspects of an individual policy are that the rate is locked in for duration of the policy, you can get a very high amount of coverage, customize it and you can take it anywhere. Whether you buy a 20 year term or a permanent policy the monthly premium will be locked in. You can also get the right amount of coverage to protect your family. Example, if you make $100,000 per year you can buy a policy for $1 million or $2 million because 3 years of your salary may not be enough protection. Individual policies can be customized with riders such as child riders, disability and long term care riders. If you change employers or your company cuts cost and life insurance is one of the perks to go, you can sleep well knowing your policy is not affected.
At the end of the day I will “always” recommend an individual policy. The main reason is that you will have control of your policy and not your employer. It is also very important that adequate coverage is purchased, one of the biggest life insurance mistakes is thinking you have enough coverage. When you sit down and do a needs analysis you can quickly realize that the $100,000 policy through work will not do much for your family. Especially when there is a mortgage, future college expenses, final expenses and loss of household income. Most often your best solution is to thoroughly understand your short and long term situation, leverage your employer paid coverage and customize any supplemental needs with your own individual policy.
As always, we are available to assist with your specific situation. We can be reached at 216-595-4975 or at firstname.lastname@example.org.