Monday, October 22, 2007

If you already have group life insurance, do you need individual life insurance?

Group life insurance is great, but if that’s all you have, there’s a big hole in your family’s life insurance safety net.

By Mary Pollman – SelectQuote

In 2006, 47% of all life insurance in force was group life insurance.* Many Americans have no life insurance except group life insurance. Should you? Here are some tips to help you decide.

1. Think about whether your group life insurance death benefit would meet your family’s needs if something happened to you. The national average for group life coverage is $50,200, according to the ACLI,* but the range is broad. Some employers’ plans offer a flat $10,000 or $20,000 of coverage no matter what your salary is. Others peg the benefit to your annual salary – 1x, 2x or 3x. (2x and 3x are only available to managers, at many companies. Or these higher amounts are only available if you pay part of the premium.)

If you have a family to protect, many advisors say you should have life insurance that would pay at least 7x your annual salary. So, while group life insurance will help get you there, it usually isn’t all you need.

2. Think about how long you’re likely to work for your current employer. Your group term life insurance generally terminates when you leave your job. If your new employer has an equivalent group life plan, you’ll be fine. But they may not. As with all other employee benefits, the trend is away from employer-paid to employee-paid. So you may get equivalent group life coverage, but you may not get it free.

Or, you may want to consider self-employment as your next career move. If group life insurance was all you had, you’re suddenly uninsured. Some employers offer group life insurance plans with a conversion option – an option to turn your group life coverage into an individual life insurance policy. But that’s rare unless you have been contributing to the premiums in the group policy.

3. Think about whether you can pass a medical exam for individual coverage. This is one of the big pluses for group life insurance. Most individual life insurance policies are medically underwritten. You’ll be asked health questions, and typically, you’ll have to have a medical or paramedical exam. Group life insurance usually involves no health questions at all – let alone an exam. So, if your health isn’t good, group life insurance can be very important for you.

4. Think about what you can afford. Group life insurance is one employee benefit that is still free to employees in many companies. Individual life insurance, obviously, is not free, however if you are in reasonably good health and you use a licensed independent sales agency to shop highly rated Term Life Insurance companies for your best rates, you should find it surprisingly affordable.

Group life insurance premiums are, up to a point ($50,000 coverage) tax-free, which isn’t the case for privately owned life insurance. If you own an individual life insurance policy, you pay the premiums with after-tax dollars, but the death benefit is tax-free.

Group life insurance is a good thing. But very few group life policies pay as much as families need when a breadwinner dies. And your group life coverage may disappear when you change jobs.

Group life insurance is a nice supplement, good while it lasts. Not the foundation of your insurance portfolio. As long as your health and your budget allow, your mainstay should be individual life insurance, owned by you.

* From an article on the website of the American Council of Life Insurance (ACLI), “House Passes TRIA Reauthorization with Group Life Insurance Provisions,” September 19, 2007. (
http://www.acli.com/ACLI/Newsroom/News+Releases/NR07-061.htm)

About the author. Mary Pollman, CLU, has been writing about life insurance, long-term care insurance and annuities for more than 20 years. She has contributed to insurance publications, websites, consumer product literature and agent training. Mary held senior management positions in communications and marketing with two life insurance companies. She is an editorial advisor to SelectQuote.

1 comment:

hadley said...

There are several benefits to term life insurance without a physical exam.

Some of these benefits include the fact that you don't need a medical exam, you don't have to meet with an agent, there's no high-pressure sales pitch, and if you qualify - you may start your coverage today.

Term life insurance without a medical exam may be the quick and easy option you are looking for to give your family additional life insurance protection.