What About Employer Paid Life Insurance?

My slow awakening may save you piles of money.

In 1974, I went to work for a major insurance company. They offered the usual package of benefits – health, dental and life insurance. They gave me one times my salary for free and I could buy up to four times additional life insurance for an extra cost. Like many of you, I just needed to sign my name and I was insured. I thought it was odd that there were no health questions asked, but never question a good deal.

Or so I thought…

Individual Term Policy Vs. Employer Paid

About 10 years later, individual term policies moved into the mainstream and became more available and competitive.  I realized was paying much too much for my employer sponsored life coverage. After investigating this I discovered an insurance term called “pooling.” I mentioned above that I was not asked any health questions to get my group coverage. What my company was doing (and yours is today) was “pooling” me with the rest of the people in my company. This means they were “average rating” me with everyone else and offering blended rate to everyone in his or her corresponding age bracket.

I realized by doing this, the company was assuming average health for everyone – some sick – some fair – some good – some in excellent health. In other words with being in good or excellent health, I got to subsidize the sick ones in the group. It didn’t take long to figure out that I could drop out of the group and buy an individual policy with a long-term rate guarantee for significantly less money than I was spending.

Here’s my second realization…

Group rates (probably like yours) are banded in 5-year increments. In other words, every 5 years (ages 30-34, 35-39, 40-44, 45-49, 50-54, 55-59) my rate band changed and the plan got even more expensive. Since I was young, I didn’t notice that fact until I hit 35.

What You’re Paying Now.

If you have group life insurance through your place of employment, at no cost to you, be thankful.

 If you have employer-sponsored life insurance where you pay the premium, take a long, hard look at the cost over time compared to opting out and purchasing your own term life insurance policy. It will not be tied to your employment (meaning the policy stays in place when you change employers). You may be less than pleasantly surprised. This may be an ideal time for you to shop the lower rates and get the most for your money. Your Human Resources officer should be able to give you relevant rate and rate-increase information. I list what to say below.

We’ve had many clients drop out of the group life plan, purchase an individual policy with a 20-year or 30-year rate guarantee and actually save money. Now the key to this is you must be in good to excellent health to make this work. If you’re sick, you have a better value in the “pool” as others are paying extra for your coverage. If you contact the Human Relations Resource area where you work, ask the following questions.

In this example, I’ll assume you are 43 years old. Ask them, “do my rates change as I get older” – they will probably say the next change is age 45 then 50, then 55 and so on. Then ask, “Based on today’s rates, what would my rate be if I were 45, 50, 55 and 60 today for the same coverage?”

Take those numbers and compare them against longer-term fully guaranteed contract available on our Instant Quote page. You may be surprised that you possibly can get a guaranteed-rate policy for less than you currently pay for your non-guaranteed (and increasing) group rate.

Who Controls Your Insurance?

It’s also important to keep in mind that group insurance isn’t portable. If your employment ends, your group life insurance will too. If your health has changed in the interim, it creates a problem if your next employer doesn’t offer coverage. An individually owned policy isn’t dependent on your next employer and is portable. In today’s transient business climate, who controls your insurance coverage is an important consideration.

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