One of the first questions we get from clients that have group life insurance is whether they actually need individual life insurance.
In each scenario listed below, there are some factors that we encourage each client to consider when answering that question. In almost all cases, upon further inspection of their needs and the existing coverage they have, the same conclusion can be reached. Try to think about your own scenario as we outline some of the questions you will want to consider.
Are you paying premiums out-of-pocket?
Although many group plans require little to no premiums paid out-of-pocket by employees, it is possible for the cost to be shared between the parties. For the basic level of coverage, your employer may cover the entire premium, but for any additional coverage above the minimum, it is more likely that you as the employee would be covering the cost. For this group life insurance coverage, it is likely that it is deducted directly off your paycheck – so you may not even notice what you are paying if you don’t look closely!
Is your group life insurance coverage enough?
While basic group life insurance coverage can be a low-cost or “free” option to employees and some plans even offer the ability for purchasing additional coverage, your coverage may still not be enough. In most cases, group insurance offers a flat level of coverage (say $25,000 or $50,000 to cover final expenses and other costs) or coverage that is a multiple of your salary (1 to 2 times your annual salary for example). If you have a spouse or children that rely on your income, it is very unlikely that 1 to 2 times your salary will provide enough coverage to support them financially for any extended period of time. In fact, many people require income replacement for much longer – perhaps until they reach retirement or their children are financially independent. For that reason, your group life insurance is a great start, but you might be underinsured if this is your only policy.
What if my job situation changes?
Just like your group benefits, your group life insurance coverage only protects you when you are employed with that company. If you were to leave your job, get laid off, switch to a part time position or if your employer decides to cancel the coverage or goes out of business, you might be stuck without coverage. In some cases, you are able to convert group life insurance to individual coverage, but the premiums will be much higher than a normal individual life insurance policy. On top of that, if you aren’t moving to another employer with coverage immediately, there could be a period of time where you don’t have any coverage. If this change of employment status is health related, you may be losing coverage at the time you and your family will need it most – and when you can no longer purchase individual life insurance or potentially afford the higher premiums if you are approved in poor health.
Is your family protected?
Your group coverage may not just be leaving your family with financial burdens, but it may also be leaving them short on coverage as well. It is common to see group policies include (or at least include the option to purchase) coverage on your spouse and dependents. However, in almost all cases, this is a flat amount of coverage intended to only cover a small amount of final expenses ($25,000 for example). Coverage for dependents is usually significantly lower than even the spousal coverage if it is included – perhaps closer to $5,000 to $10,000.
Group life insurance is cheaper though, right?
You may be surprised to find out that group life insurance coverage may actually be more expensive than individual insurance. When group insurance premiums are calculated, the insurance company uses the demographics of the employees to determine the cost. Without any further medical questions, group life insurance coverage has to assume that some people within a group are going to be at below-average health for their age demographic and increase pricing accordingly. As a result, if you are healthy relative to your age and especially if you are a non-smoker, you may actually be paying higher premiums to compensate for others with health conditions. In this case, an individual life insurance policy might not only provide more robust coverage, but at a lower rate!
The Verdict
Group life insurance coverage will provide some level of coverage to your loved ones to ease the financial burden if you die, but it may not provide the level of coverage you are looking for. We have explored a number of different questions to gain a better understanding of some of the benefits and shortcomings of your group coverage. Our hope is that this information will help you make an informed decision and ensure that you and your family are properly protected.
Next Steps
Now that you have reflected on your situation to determine if you are comfortable relying on your group insurance alone, you may be wondering what is next. Our team of licensed professionals at Hometown Life Insurance are happy to assist you in reviewing your individual insurance needs. Our process takes into account the things and people that you want to protect with your life insurance. By identifying what is important to you, we are able to complete an initial recommendation including details about proposed coverages. Of course, we will take into account any group coverages you have as well as other individual policies you may already own. Having a second set of eyes reviewing your insurance may help identify some gaps in coverage that can be taken care of with individual insurance. Spending just a little bit of your time on an insurance review with a Hometown professional can make a big difference in the lives of you and your family.
