When it comes to insurance, having the right coverage is crucial. Whether it’s your home, your health, or your car, an insurance policy can make all the difference when life goes wrong.
If you have loved ones, then life insurance is another must, but are you getting the coverage you need?
In this article we will look at what you need to know about group insurance through work if are in your 50’s or 60’s, and how it compares to individual protection you can get outside of your job.
Because providing for your loved ones is crucial, it’s imperative that you understand the pros and cons of both kinds of insurance and where they may fall short.
Does Your Job Offer Life Insurance?
Chances are the answer is yes.
Most workplaces provide some form of life insurance to their employees. So if you are employed there’s a pretty good chance that you have coverage.
And if you do have life insurance coverage at work chances are I am going to tell you to get all that you can get.
Usually, the cost that you would have to pay is minimal so you might as well take it.
Having said that, one common misconception that people have with group insurance is that all policies are sufficient. Most workers assume that as long as there is any kind of coverage that they’re set in case something happens.
Unfortunately, group insurance can come with some pretty big catches, which is why it’s always necessary to find out the specific details of your plan.
You don’t want to pass away and then have your family find out that you weren’t as covered as you thought!
Pros and Cons of Group Life Insurance
Let’s take a look at a few of the different ways that life insurance through work may or may not be sufficient for you and your family.
One of the most significant differences between group and individual life insurance is that you don’t own the policy. That means that the coverage is wholly dependent on you working for the company.
If you leave your job, you get fired, or the business goes bankrupt, you suddenly won’t have anything left.
The other issue with the policy being owned by the company is that you don’t have a say in the coverage options. For the most part, your employer isn’t thinking about any one employee’s specific needs.
Maybe your getting closer to retirement, but still have a large mortgage and three kids that are still financially dependent on you. In this case you may need quite a bit of life insurance.
And your co-worker may be single, living in an apartment with no dependents, and may not have a need for any life insurance.
Finally, nothing is stopping your employer from reducing the benefits that are offered or even canceling a group insurance policy altogether.
Even worse, depending on where you work, you may not be notified if that happens. You may also not be notified if the plan changes, so it’s imperative that you check up on it regularly.
In a worst-case scenario, you might have looked over the group policy and decided that it was sufficient for your needs.
Unfortunately, the company decided to switch to a lower cost plan with reduced coverage, and didn’t tell you.
Now you’re stuck with something you don’t want that might not be enough for your loved ones.
Pro: It’s Cheaper Than Individual Plans
If you’re shopping for life insurance, you will notice immediately that any coverage offered through work is going to be substantially more affordable than anything you can find for yourself.
Because the cost of the plan is often shared by both your job and everyone who works there, you may only be paying a few dollars a month.
In ideal situations, your insurance is provided as a free benefit of working there.
So, if your budget is really tight group insurance might be all you can afford. Even if it doesn’t cover everything you want, it’s better than having nothing.
Con: Payouts are Limited
When comparing different life insurance plans, it’s crucial that you understand how much your family needs if you were to pass away. Some of these considerations can include:
How much money do you and your spouse make?
How many kids do you have and their ages? Are they still in school and are you wanting to help pay for their college education?
What’s the cost of living in your area (rent, utilities, etc.)
Any outstanding debt in your name
Will your spouse lose a Social Security check if you were to pass away?
Will your spouse stop receiving your pension or will the pension be greatly reduced?
There’s a lot of factors to consider and depending on your situation, you may need more than what a group insurance plan will pay.
Typically speaking, these policies only provide as much as one or two year’s worth of income. Be sure to find out precisely what the total coverage is from your employer.
Pro: No Need to Qualify For Coverage
You do need to qualify for individually owned life insurance coverage.
Depending on the insurance company and the type of policy you apply for they will ask questions about your medical history and your lifestyle.
They will also run a prescription drug check, they might obtain your medical records, and you might be required to do a medical exam unless you apply for a no medical exam policy.
As a result, you may not be able to get individually owned life insurnce
Group insurance, however, doesn’t require medical underwriting, because the policy is covering multiple people. That’s also why the payouts are usually less than what you can get in an individual plan.
Basic vs. Supplemental Group Insurance
When looking at your company’s insurance plan, there are two primary varieties: basic and supplemental.
Basic group life insurance is a standard policy that has a specific payout structure. The rates and benefits are the same for everyone on the plan.
Supplemental group insurance, however, can be adjusted based on your needs. Sometimes, you may have the option to purchase additional coverage through the plan.
If this is the case, you will have to pay a higher premium for the additional coverage.
Also, you’ll probably have to fill out a health questionnaire. Some insurers may also require a medical exam for additional coverage, so keep that in mind and be sure to ask about that when applying.
Should I Get an Individual Life Insurance Policy Instead?
Look, if you can get any kind of coverage for free from your employer, you should always take advantage of it.
Free is good.
That being said, I wouldn’t recommend that you count on group life insurance coverage. Instead, I suggest you consider it a nice benefit to have while it’s there.
Most people will be better served by signing up for the coverage through their work, but also obtaining individually owned coverage as well.
Let’s take a look at some of the reasons why.
In generations past, it was pretty standard for people to work at the same job for decades. These days, however, it has become much more commonplace for individuals to switch jobs more frequently.
Whether it’s because you’re upgrading to a higher position with a different company, your employer laid you off, or some other reason, you need to consider how long you will be staying with a particular company.
If you’re already planning on leaving in the next few years, getting an individual plan now may be the best move because you may or may not get group coverage with your future employer.
Age and Health
Typically speaking, the younger and healthier you are, the cheaper your life insurance rates will be.
A 50-year-old man in great health may be able to qualify for a $250,000 20 year term policy for $40 a month. A 60 year old also in great health may have to pay $109 a month.
However, a 60 year old that is in average health may have to pay about $196 a month for the same exact policy.
The cost of individual life insurance is going to increase the longer you wait, so it’s better to obtain coverage sooner rather than later.
If you wait too long and/or develop health problems, you may miss out on your chance to get decent life insurance altogether.
When talking about leaving your job and losing your life insurance, most people assume that means either quitting to work for someone else or getting laid off.
However, retirement can also terminate your group life insurance, unless it’s portable, since you’re no longer working for the company.
Rarely will the coverage be portable and follow you into retirement, so you have to plan for that eventuality.
That being said, you may not have the need for life insurance when you retire. That’s for you to decide.
If you aren’t sure if you need it, or if you know you need it but aren’t sure how much you need, feel free to give me a call and we can discuss.
Bottom Line: Group Insurance is Good, But Don’t Fall Short
If your employer offers free (or cheap) life insurance, there’s really no reason not to take it.
However, understanding the limitations of this coverage can help you make an informed decision about what you and your family may need.
As I have explained in this article, most people over 50 should plan to supplement their group policy with additional individually owned coverage.
Even if your employer allows you to upgrade within the group plan, it’s still a good idea to have individual life insurance as well, just in case.