As open enrollment for employer-provided insurance benefit plans rolls around this fall, many employers will be offering their employees the benefit of participating in a group life insurance plan. According to a National Compensation Survey issued by the U.S. Bureau of Labor Statistics in March 2017, approximately 65 percent of workers have access to life insurance and almost as many, 64 percent, participate.
While you investigate your options, be confident you have explored the most comprehensive life insurance policy options offered to safeguard your family’s future. Is participation in a group plan sufficient enough to ensure that if something should happen to you, your loved ones group will be financially secure for the long term?
Become Informed: Group Life Insurance and Individual Life Insurance Coverage
Group life insurance, a life insurance policy intended to cover a group of people, is often provided by employers as an employee benefit or by a professional association for its members. Group life insurance can be an advantageous benefit for most, yet it’s imperative to understand the policy restrictions when joining a group policy, particularly given the fluctuations in our current economy.
In addition to examining the life insurance offered by the group plan you’ll also need to examine your own coverage needs. Individuals need life insurance that provides adequate coverage to protect their loved ones in the event of the policyholder’s death. When considering whether you should enroll in a group or individual life insurance plan it’s important that you understand the full extent of your life insurance needs. The first step is to work through what expenses you’d need to leave money for in order to provide your loved ones with the quality of life you want for them and cover any long-term goals. Think through your current expenses (as well as your spending habits), these might include mortgage payments, utility expenses, day-to-day living costs, childcare, medical expenses, and any other debts. Would your family be able to continue to afford these things without your income? If not how much money would they need to maintain their lifestyle until they got back on their feet? You should also think about any future expenses you’d like to provide money for, this often includes things like college education and wedding funds. Our online calculator can help you determine the precise amount of coverage you need to keep your family financially secure.
Once you’ve determined your coverage needs and understand the group coverage on offer you’ll be able to determine if the group plan will provide your family with adequate protection. However, there are some other things you should consider before opting for group coverage.
Addressing the Coverage Gap
Many people find that group coverage doesn’t fully meet their coverage needs and creates a coverage gap. The coverage gap is the difference between the amount of coverage offered by your group policy and the amount you need to provide adequate financial protection for your loved ones. This gap in coverage can often be large, as it’s not uncommon for employers to provide employees with coverage that’s equal to one year’s income. While this is a great start to your financial planning and a nice employment benefit, it’s often significantly below what a family would need to be free from financial stress for at least a few years after the death of their loved one. This is especially true for people with young families who need to plan for both current costs such as housing, childcare, and day-to-day expenses, and future costs such as college tuition fees. Depending on your situation you may need to have insurance in place that can replace your income for a number of years.
If you have a coverage gap, adding additional coverage to your employee or group sponsored plan is an essential step in planning for your family’s future; however, not everyone will have a coverage gap. Before you rely on group coverage as your only life insurance coverage, there are some other things you should consider.
Understanding Group Life Insurance
Employer-sponsored plans are owned and managed by an employer. Therefore, because the employee does not own the insurance policy, the employer can easily change or eliminate the benefit. Traditional employer-sponsored insurance policies can also be significantly more expensive than what one would pay for an individual policy.” It is imperative you weigh your options and determine your cost for coverage through your employer-provided plan, as well as the comparative costs for purchasing an individual policy. Many are surprised by the information.
Group life coverage may also be less comprehensive than the employee may believe it to be, and since the plan is owned and managed by their company, the employee has very little flexibility in ensuring the policy meets their unique lifelong needs.
It is also important to understand if your insurance is portable—meaning you may take it with you should your employment end. Portability allows you to maintain your insurance regardless of your health, where you live or where you work. It is critical to clearly understand the terms from your employer as they vary significantly between policies and employers.
Long-term coverage is one of the many key points to consider when comparing individual vs. group life insurance, so why is portability important? Although the group plan might provide great coverage now what happens if that coverage is suddenly not an option? You may think that you can replace that coverage with an individual life insurance plan, which may be true but it may also come at an additional cost! Your age and health at the time of enrollment in a policy has a huge impact on your premium cost. Enrolling in a plan when you’re say ten years older may make the plan far more expensive and reduce the coverage options available, which in turn can make it difficult to get the right coverage for your needs.
Understanding Alternative Options
It wouldn’t be fair to discuss group vs. individual life insurance without covering the available individual options. Let’s start with an individual life insurance definition: Individual life insurance is a policy purchased by an individual from an insurance company. The insurance is not tied to a group or employer. There is a huge range of individual life insurance plans on the market, from short-term plans that offer very high death benefits, to permanent plans that provide just enough coverage to cover end of life expenses. These policies generally fall into two types of categories: whole life insurance and term life insurance.
- Whole life insurance
Whole life plans, which are also known as permanent life insurance, cover the policyholder for life. One of the biggest benefits of these plans is that they provide a guaranteed death benefit; however, coverage can be expensive.
- Term life insurance
Term life insurance policies offer coverage for a fixed period known as a term, with a term commonly lasting anywhere from 5 to 30 years. Term plans only pay out a death benefit if the policyholder passes away during the policy term, although many plans allow the insured to convert their plan to whole life coverage. These plans are extremely popular, as they offer high coverage amounts for affordable premiums.
The important thing to remember about individual life insurance is that you’ll need to apply for coverage; however, once you’re approved you own the policy and won’t need to worry about losing coverage due to a job or benefit change.
The Bottom Line On Individual Vs. Group Life Insurance:
Educate yourself to be certain you fully understand the benefits and extent of your group coverage, consider purchasing an individual life insurance policy in addition to, or instead of your employer-sponsored plan, and evaluate your options by requesting life insurance quotes from a reputable source.
IntelliQuote’s online life insurance marketplace can help you get instant quotes for group life insurance alternatives, all from the comfort of your own home. Simply fill in our online quote request form to view plans from the best-rated insurers in the US.