Group Versus Individual Life Insurance

The tumultuous economic climate, while spurring an overabundance of doom saying and sensationalism, has on the positive side allowed us to appreciate that which was previously overlooked. Job, salary and benefits security, for example, are no longer taken for granted by many of us. Our economic landscape is not only conducive to counting our blessings, but also to re-examining choices that may have been made under a false sense of security and benefit. One of these choices is your life insurance.

We all understand the value of life insurance. We all admit that the chance of premature death is small, but that if it happens and you do not have life insurance, your family has a BIG problem. This is why we leverage a relatively small premium for a large death benefit designed to protect our families from the loss of income. If we recognize that life insurance is about protecting against something that is not likely to occur, then our decisions in procuring that life insurance should stay consistent with that mindset. There are several reasons why relying solely on group life insurance is not consistent with that mindset of safely managing risk.

The time to obtain a long term solution to your life insurance is when you are healthy. Nobody thinks that they will get sick or disabled, but millions of Americans are disabled, cancer survivors, diabetics, heart attack patients etc. These millions of Americans who have become sick or disabled shared the same thoughts of invincibility. I have the benefit of a perspective of a life insurance agent who receives calls from people that are sick or disabled and are trying to get life insurance. These people had group life insurance, but lost their jobs due to their sickness or disability and therefore lost their insurance. Premiums for people with adverse medical histories are obviously much higher and often limited in the amount of coverage they can procure which often leaves them inadequately protected.

Millions of Americans that understand the value of protecting against the small chance of death rely on life insurance that is tied to their employment. Isn’t a change of employment more likely to occur than death? Isn’t the chance of getting sick or disabled more likely than death? Why protect against a smaller risk and not the larger one that can compromise your entire life insurance plan? Even if you have not had any health problems, age is the number one driver of life insurance premiums. Additionally, insurance companies provide incentives for getting longer terms of coverage. In other words, irrespective of the chances of your health rating being better at a younger age, a 40 year old can obtain lower rates for coverage between age 60 and 70 (for example) than a 50 or 60 year old can obtain for the same age.

Still, cash is king. Group rates can be attractive and we do not suggest that you should not take advantage of strong leverage where it exists, but individual policies usually provide more savings than you will find in a group policy. Not only is group insurance not a good long term solution because there are risks of your coverage being compromised by forces outside of your control, but the premiums will generally increase over time. So, when the chances of death are actually getting more likely (as you get older), your premiums start to become unaffordable. If I had a nickel for every time I heard, “I should have done this 10 years ago…”

If you are relying on group life insurance to protect your family, ask your Human Resources adviser the following:

Is my policy convertible to an individual policy if I leave the group? If yes, what will the premium cost be?

What is the premium schedule for my policy while I am part of the group?

What do you want your legacy to be? Know what your options are for an individual life insurance policy.

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