Is it best to get life insurance through work?

Life insurance is one of the few products that can offer you the peace of mind in knowing that your family will be financially taken care of when you are gone. If you are planning for the future, one of the first things that you need to create or review is your life insurance portfolio. You should first determine how much life insurance you need and then determine which types of life insurance should be added to your portfolio and what face amounts will fit within you budget. Once you have determined those things you should use an online comparison tool to find a plan that fits within that budget. Start comparing life insurance rates now by using our FREE tool above!

Buying life insurance can be a time-consuming process for many people, but that does not mean that any type of life insurance can give you peace of mind. If you are being offered employer-sponsored coverage through work, you need to be able to weigh the importance of this type of plan before you assume that it eliminates your need for an individual plan. Employer-sponsored group insurance may be a great employee benefit and a nice addition to a compensation package, but it does not work entirely the same way that your own life insurance policy works while you carry it or if you need to file a claim. Read this guide to group life insurance, and then you can weigh how you want to build your portfolio.

What is the primary difference between group life and individual life insurance?

When you are offered life insurance through work, it is an employee benefit much like a health insurance plan is an employee benefit. While group life insurance policies are designed to offer policy benefits to beneficiaries in the event of your death like an individual plan, the events that the policy cover, the premiums, and the ownership are all very different from individual plans. Truly understanding how group insurance works will paint a picture that will help you see the difference more clearly.

How does group life insurance work?

A group insurance policy can only be purchased by a large-scale entity that employs a certain number of people. Because the employer has several different individual workers who will buy coverage, the insurer will offer the employer the option to buy the coverage at a wholesale price.

The employer will purchase a life insurance contract, in which they will be the owner, and they will pay a portion of the premiums.

The additional portion of the premiums will be deducted from payroll before taxes, which can be beneficial when it changes the person’s tax bracket. If the employee passes away due to a covered event while they are employed, the coverage will pay a listed beneficiary as you designate the benefit.

How does individual life insurance work?

Now that you have a basic understanding of how group life insurance works, the next step is to compare it to individual life insurance. Individual life insurance comes in several different forms, but what makes a plan an individual one is who owns it and who pays for it. When you buy an individual plan, you have the option to choose whatever type of plan and whatever limit that any life insurance will offer you. You can decide if you would prefer to buy a permanent insurance plan or a term insurance plan that keeps the premiums down. You can also decide if you want to buy a plan that is 10 times your salary or just 2 times your income.

Whatever type of policy you choose, you will be both the named insured and the owner (unless you list another owner). As the owner of the policy, you are responsible for paying all of the premiums with after-tax dollars. You do not receive special wholesale pricing or pay just a portion of the cost because your employer is not sponsoring the plan through an association. While individual life can be more expensive, there is much more freedom and many of the plans cover more events.

The Pros and Cons of Group vs. Individual Insurance

No insurance product is perfect. There will always be pros and cons when you are comparing life insurance products. The key is to find the product with the least cons and the most pros. Here is some valuable information about the pros and cons of group life versus individual life:

What are the pros of buying group life?

One of the biggest advantages of buying a group life plan is that it takes the complication of buying coverage out of the process. Your company generally will limit the amount of coverage that you can buy, so you know exactly how much coverage you can choose to carry through this type of product. Another advantage is that your premiums will be extremely low when you buy insurance that your employer is offering you. This is because you only pay a portion and because the provider offers special “bulk” rates to those clients who qualify for a group plan.

Yet another advantage of group life is that the insurer is not allowed to consider your current medical condition when you start your plan.

Your rate will be your rate regardless of if you are in perfect health or if you have diabetes and you are considered overweight. Since pre-existing medical conditions and your physical composition cannot be considered when you are offered coverage as a benefit. If you are ill and you cannot qualify for any type of traditional life insurance outside of work, buy as much group life as you can now and remember that you have this benefit before you are tempted to leave your job.

What are the drawbacks of group life?

Some may not know it, but certain face amounts can be taxable when you are offered group life at higher limits. If you do not know this, taking the hit can be surprising. This is not the biggest drawback to keep in mind. The biggest drawback is that most group life insurance policies have a long list of restrictions. Some plans are accident-only policies that will only pay if the death is caused by an accident and not an illness. Some plans will not pay for certain illnesses but will pay for others.

You must take the time to read the restrictions before you assume that a plan will pay out when your family needs it the most.

Many people assume that they are going to work for their company for the rest of their life. While it would be nice to enjoy a stable career, this is not always the way that life goes. Some people lose their jobs because they miss work too much, some are laid off because of the economy, and some choose to start their own business and leave by choice. You never know what can happen in the life stages to come, and you need to be realistic about what your future holds.

If you were to leave your employer and the only coverage that you have is through work, your coverage will be terminated. This leaves you at an older age when you need coverage the most and may not be able to qualify. This turns into higher premiums and then into a greater expense when you are trying to save for your upcoming retirement. This is why all experts recommend that you have at least some individual insurance.

What are the pros of individual life insurance?

The biggest advantage is that you have the choice to select what type of insurance you want and what carrier you trust enough to do business with. If you want a short term, a long-term or a permanent plan, your employer does not get to choose which one you can get. You will own your plan, your employer cannot take the benefit away from you due to budget cuts, and you know your coverage will be there for as long as you have planned. Individual life insurance should always be the priority and group insurance should be a supplement.

What are the drawbacks of individual life insurance?

Buying group insurance may be less expensive when you have medical conditions because you will have to pay a higher rate. You do have to answer to the underwriters and disclose your medical records and issues to be considered for coverage. This scares some people away from applying for their own plans. You will need to decide if the risk of being covered by a potentially temporary plan is enough to persuade you to add individual coverage to your plan.

If you only have life insurance through work, it is time to start pricing the cost of individual coverage. You can do this by using an online rate comparison tool and answering the basic questions the tool asks. Once you disclose your information, you will be directed to quotes for term or permanent insurance through several carriers. After you see how affordable life coverage is, you will want your own plan. Start comparing life insurance rates now by entering your zip code in our FREE tool below!