With the current turbulent economic times leading to more employers discontinuing sponsored benefits, relying solely on group life insurance plans to provide your family with financial security can be akin to playing Russian Roulette.
Generally speaking, group life policies are pretty minimal plans, so because the plan is not tailored to meet your individual needs, there may be holes in the coverage that could expose your family to financial troubles down the road.
Your individual circumstances play a major role in determining if your employer’s group life insurance plan is sufficient. A basic group life insurance policy might be adequate if you are only concerned with covering funeral costs. But if you intend to provide your family with a financial cushion after your death, group coverage may not be enough.
Joe Rachinsky, a communications consultant for The Life and Health Insurance Foundation for Education (LIFE), recommends that policyholders purchase 10 times their annual salary in life insurance benefits, if not more. It’s not possible to fund this high amount of coverage through group insurance alone.
“Depending upon your age, dependent status and financial obligations, it’s often advisable to own some individual life insurance,” Rachinsky says.
Group insurance plans are more general and less expensive, but provide poorer overall coverage. The requirements for coverage eligibility aren’t as stringent, so employees with health problems that might otherwise be denied for coverage through an individual plan could find cover under a group umbrella. Most employer-provided group insurance policies are term plans where eligibility is contingent on your continued employment with the company.
Rachinsky says employers take into account the age, gender and the amounts of insurance of the group to determine policy rates. It is then adjusted to the size of the group, type of occupation and its combined health risks.
Employer’s can pay for all, some or none of the cost of these sponsored benefits. Most group insurance policies are the equivalent of one or two times an employee’s salary.
The best way to supplement group life insurance is to layer it with either term or permanent individual life insurance. Term life insurance provides protection for a specified time period – i.e., term – which is normally offered in periods of 10, 20 or 30 years. Permanent protection is pricier upfront, but provides lifelong protection and accumulates cash values on a tax-deferred basis.
Bankrate.com lists the top 10 costliest life insurance health conditions, which include heart disease and even asthma.
These plans can be purchased from any one of hundreds of insurance companies across the country. The range of costs will vary depending on type and amount of insurance purchased, as well as age, occupation and current health condition, but policies can cost anywhere from a couple hundred to several thousand dollars annually.
Ultimately, as Rachinsky point outs, “… The most important thing is to make sure you get the coverage you need to protect your loved ones, regardless of the manner in which you purchase it.”