Why Group Life Insurance May Not Be Sufficient


GroupDuring my 25 year career I have met scores of people who rely only on the Life insurance they get at work.

Many of these same people want their Life insurance to,

Unfortunately, $20,000 of group term life insurance will not do all of those things.  Twenty thousand dollars may be enough to pay funeral expenses and pay off credit cards.  It is not enough to replace a lost income, pay off most mortgages or set up college scholarships.

In this post you will learn why you may want to supplement the insurance you have with personally owned insurance.

YOU DO NOT CONTROL GROUP LIFE INSURANCE

Yes, you have the right to name a beneficiary but you do not control the group plan.  Your employer does.  There is no federal law that mandates that an employer must offer group life insurance.  The only federal laws that I am aware of that regulate group life insurance say that if an employer offers group life insurance, he is not allowed to favor one employee over another.

Some people, mistakenly, think that the new Health Care law changes things.  It does not.  The Affordable Care Act, also known as Obamacare, mandates that all employers with more than 50 full-time employees must carry group HEALTH insurance or pay a penalty if only one employee applies for a “subsidy.”  The new law does not require employers to offer LIFE insurance.

If the cost of the new Essential Health Benefit plans is too expensive, employers may elect to eliminate Life insurance from their group benefits. If that happens, you have no appeal.  You will lose your Life insurance and have no say in the matter.

I will admit that I am not familiar with state insurance laws in all 50 states.  There is a chance that your state has a law that requires an employer to offer group Life insurance to all employees, but the odds are there is not.  Most states do not have such a law.

JOB CHANGES

Federal COBRA laws only apply to Health insurance benefits for companies with more than 20 employees.   If you work for a company that provides both Health and Life insurance for more than 20 employees and your employment is terminated for any reason, other than “for cause,”  you can keep your group Health insurance benefits for a period of time as long as you pay the premiums directly.

However, COBRA does not include group term Life insurance.  Regardless of how many employees are in your company.  Your group term life insurance will end with your termination effective date (or the end of the month, depending on what state you live in.)

To protect yourself you will need to get some Life insurance directly with an insurance company.  Click the banner below to see what an inexpensive term Life insurance policy would cost you.

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AGE CHANGE

Most group benefit plans have a clause in the master policy that spells out what happens when an employee turns 65.  Often people ignore this detail.

At age 65 group plans normally require that you continue to pay the same premium you are used to but the death benefit is cut in half.  There are two groups of people who this affects.

  1. If you are over 65 but still get “full” benefits, you should check to see what happened to your life insurance.  If you had $20,000 of Life insurance when you were age 64, there is a chance that if you died today your spouse would only get $10,000.  Check with your employer to make certain.
  2. If you are over 65 and get retirement benefits, your insurance may be even more complicated.  Not only is it probable that your Life insurance benefit was reduced.  Your health insurance may have adjusted to coordinate with Medicare.  If you are not certain, contact your former employer to find out.

SOLUTION

When I was a rookie insurance agent I was taught, “Use permanent insurance to solve permanent problems and temporary insurance to solve temporary problems.”

Using that philosophy, there are 2 solutions.

  1. If all you are concerned about is that your loved ones have enough money to pay for your final expenses, I recommend that you use a “Participating” Whole Life plan.  If you purchase it while you are relatively young (<50) there is a good chance that the “dividends” will be enough to pay the annual premium for you when you retire.  That way you still have the Life insurance during retirement and do not have to pay premiums out of your regular cash flow.
  2. Many people, especially those with dependent children, want to guarantee income and other expenses are provided for survivors.  If that is what you want to accomplish, your family will need much more cash than what most group Life insurance plans provide.  For that I recommend that you consider Term Life insurance.

Since you cannot control the timing of your death, the only option that guarantees that there will be enough money to accomplish what you set out to do when you were alive is Life insurance that you personally own.

Group Life insurance is a nice luxury to have but there are many variables.  If your employer offers it, take it.  However, don’t build your entire protection net on group Life insurance.  It may not be there when your family needs it.

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