I am a strong believer in using Term Life Insurance and encourage most of my clients to use Term Insurance to meet their life insurance needs. Term insurance is often available through your employer, but in many cases it is best to NOT get it through your employer.
There are four reasons that this is the case:
1. Your rate will most likely be cheaper if you buy your life insurance from someone other than your employer’s group life insurance provider. If you are healthy and are paying for insurance coverage through your employer, you’re probably paying too much. Group insurance policies must provide insurance to all employees – whether or not they are healthy. When you are part of a group life insurance plan, your premiums are averaged in with those of unhealthy individuals in your company who are also a part of the group plan. The way that a group policy works is that typically the life insurance company waives the required health exam for all employees. Instead, they just average the price for all the employees and offer one or two rates for males or females at any given age. The insurance companies know that they will receive a lot of unhealthy insureds this way, so the rates are higher and the healthy people end up overpaying. If you look outside of your company for life insurance, companies don’t have to insure everyone. If you are healthy you will be able to qualify for their very best rates.
2. You will not lose your coverage if you change jobs or retire. Generally group life insurance is not portable, although most companies will allow you to convert it into some sort of permanent (i.e. Whole Life) policyOnce that happens, you will have to apply for a life insurance policy and you will be older and probably not as healthy and risk being turned down for a policy. If you are not in the best health, this can cost you a lot of money. If you have purchased your insurance outside of your employer’s group policy, you will not lose your insurance.
3. When you buy your term life insurance from someone other than the group life insurance provider at your employer, the rate will normally be a flat rate for the term of the insurance. The cost of group life insurance policies can increase each year – and generally vary each year according to your age. For example, a 45 year old will pay more for the same amount of insurance than a 35 year old will.
4. Your company may not allow you to buy as much life insurance as you need through their plan.
For these reasons, it’s smart to obtain your own life insurance policy in addition to or instead of the coverage offered by your employer.
If you have questions on this or would like some pointers to good sources for buying Term Insurance, please email me or call me.