Group Insurance Is Inadequate

A policy protecting your family in the event of your death should be an integral part of your family insurance planning. Fortunately, most employers provide life insurance benefits to employees in the form of group policy plans. The provided coverage is typically a multiple of an employee’s yearly income and is designed to cover loss of income associated with an employee’s death.

Such coverage has a lot going for it. As with health insurance under the Affordable Care Act - at least at the time of writing, no medical exams are required to qualify, meaning you can’t be refused a policy due to age or health, unlike with individual policies. And premiums are deducted from your paycheck, so there’s no worry about the policy lapsing because you get behind on your payments.

That said, group life insurance policies have a number of shortcomings that, together, mean you may want to supplement them with coverage you buy yourself. Here’s a rundown of those limitations:

NOT ENOUGH - At best, employers’ policies usually provide death benefits equal to or double the employee’s annual salary. That may sound like a lot, but experts say that married individuals, especially those with children or significant debts, should ideally have anywhere from five to 12 times their annual salary in coverage. When a wage earner dies, living expenses usually only drop by around 10%, since the household debt will likely remain as it is and many expenses are fixed, regardless of household size.

Group policies probably won’t sufficiently cover family members, either. While most group policies provide nominal coverage to a spouse through the primary insured individual, the coverage is less substantial than you’ll probably need, and it generally ends upon the death of the employee, as the primary insured person. Additionally, child riders--which provide term coverage to children born to the primary insured, and can be upgraded to very affordable whole-life policies when children come of age--are also very uncommon with group policies.

COVERAGE ENDS - When employment ends, so does your insurance coverage, as a rule. Some policies offered through employers are considered “portable,” meaning you can convert your group policy coverage into an individual policy. That’s a plus if you have health or other issues that might complicate getting a new policy, since converted policies are usually issued on a guaranteed basis, meaning you will not have to “health-qualify.”

However, in such cases, if your work policy is convertible, you’ll be responsible for the entirety of the premium once employment ends, potentially making such a policy prohibitively expensive and unaffordable. And if you end up having to leave your job due to a major illness or health condition, you may have trouble getting additional or alternative coverage through an individual life insurance policy; those, as noted above, require you to qualify based on your health. Even if you do qualify, premiums are likely to very--perhaps prohibitively--high.

For all these reasons, it’s best to consider your employer’s insurance coverage as merely a helpful job benefit, and to plan to buy sufficient coverage for you and your family.

You can typically opt to buy additional coverage through your employer-sponsored policy, but its coverage limits typically max out at well below the recommended levels.

Buying such coverage early is wise, in order to secure a low premium and as much coverage as possible. Just as a speeding ticket or accident can affect what you’ll pay for auto insurance, a health setback can boost you life-insurance premium, or even lead to you being deemed too unhealthy to qualify for coverage at all. Ensuring you have proper life insurance coverage will give you peace-of-mind in knowing your family’s finances are covered in the event of your death.