Q: I have life insurance at work. Is it better to buy it there, or have my own policy?
A: It depends! Group insurance can be a very compelling place to get your life insurance for some people. For others, group insurance is a very expensive proposition. So, how do you tell if it’s right for you?
The answer to that resides in the question, “How insurable are you?” For the people who are good insurance risks, meaning they are healthy, don’t use tobacco or have dangerous hobbies, and have clean driving records, group insurance is probably over-priced. For those who have health concerns or the other issues mentioned above, group is probably a good deal.
When you buy group insurance, it is usually an easy process. During your benefit enrollment, you check a box. There are no questions to answer, no exams to take.
With individual insurance, you must prove insurability. You take an exam, open up your medical history, driving record, etc. in order to obtain a policy.
With group insurance, everybody in the group is charged the same price. The avid marathon runner is the same cost as the morbidly obese employee with a recent diagnosis of diabetes. There is no distinction made between the two.
Somebody who is healthy would likely want to be seen as an individual and not thrown into the general pool. The marathon runner should say “look at me as an individual!” and therefore pay a cheaper rate.
Healthy people general believe that their group insurance is a good value. The cost always seems small. However, the premium is usually paid bi-weekly or semi-monthly out of each paycheck. When you look at a cost-per-thousand-per-month analysis of group and individual insurance, it is not uncommon for the group to be two to three times more costly than just obtaining individual insurance on your own. Again, if you have health issues, you will not likely find this to be the case. The healthy people subsidize the cost of the unhealthy.
However, should your death benefit needs be substantial your group policy might not meet your total needs. Group policies are usually capped at something like twice your annual salary. Further, you might want a whole life policy to facilitate savings, while the group policy might be term life. An individual policy allows many more options.
In addition to all that, individual policies are portable, meaning they follow you regardless of a job change. Individual policies are often times convertible to a permanent plan. They often times will have a waiver of premium so that the policy does not lapse when you are unemployed due to a health condition. Finally, individual policies come with a financial advisor! Somebody who not only can help you on the front end as you wade through complex decisions on the purchase of life insurance, but during the emotionally painful back end during a death claim. They’ll be able to provide financial guidance that is absent when a group policy pays out.
Seek out a meeting with your financial advisor today! Bring along a paystub and work through the mathematics together. You might be surprised at what you find!
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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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