Should You Buy Life Insurance Through Work?

The answer to this question is almost always yes. If you buy insurance through your employer it will usually be far cheaper than buying it yourself. That said there are a few major pitfalls you need to be aware of when considering employer-provided life insurance. I like informed Pilgrims making good financial decisions, don’t you?

Why Buying Life Insurance Through Your Employer Is Usually A Great Deal

When you buy life insurance through your employer you are most likely buying into a group term policy. And since it’s a group policy, the insurance company is usually forced to accept you even if you have pre-existing conditions. This isn’t always the case but it’s definitely something to confirm.

And it gets better. Most groups are made up people in all kinds of age groups. If there are lots of young workers in the group the premium will be lower. That means if you are older than the average employee at your firm, you’ll enjoy lower rates. (On the other hand, if you are very young, you may find that an individual policy is more attractive than the group plan. This depends on the demographics of your particular group.)

Last, because a group buys in bulk, the insurance company saves a lot of money on administration and sales costs and they pass those savings on to the group members. So the bigger the group the more you’ll save. Sounds great….right? It is…but there are a few problems with group term.

What To Beware Of With Group Term Life

Keep in mind that your group term life insurance usually lapses when you leave the group. That means that when you quit or get canned, you may lose your life insurance. If that happens when you are older and/or less healthy, you may have to pay a lot more for insurance. If your health situation really declines you may not be able to buy your own private coverage at all.

In some cases, after you separate from service you may be able to convert your group policy into an individual policy or hold on to it for some period of time before you replace it. Either way, it’s important so find out how portable your group insurance really is.

Another annoyance with group coverage is the amount of insurance your employer allows you to buy. Usually this is limited to two or three times your annual salary. That’s fine if that’s all you need but what if you need more than that?

This may sound like a problem to some people but to me this is a blessing in disguise.
We’ve already discussed that insurance through work has one big problem – when you leave work it may be very hard to take the coverage with you. We know that form the get-go.

If that’s the case, it might be a good hedge to have a little coverage of your own, right? Well, if your employer won’t let you buy all the coverage you need, it “forces” you to make up the difference with an individual policy. And that means you can buy all the coverage you need and keep it as long as you need.

So all things being equal, if your employer offers group term cheaper than you can buy it yourself, I suggest you consider that option carefully. In an age where some people change jobs as quickly as they change their socks, it’s a great idea to buy your own policy as well.  Just don’t assume you have all you need.  You may have too little or too much.  You have to make sure.

Do you own group term? What has been your experience?