The Pros and Cons of Buying Life Insurance from Your Employer
Have you been thinking about purchasing life insurance? With open enrollment around the corner, you’re probably debating whether or not to purchase a policy through your employer.
Some employers even offer a “free” group life insurance policy for $10,000 to $50,000 of coverage, or one year’s salary.
If you are single, with little debt and no dependents, this may be all the life insurance you need. However, the majority of Americans who have families and own homes will usually need a significantly larger amount of coverage.
We always recommend taking advantage of the free basic group policy your employer offers, but is it better to purchase a supplemental policy from your employer, or buy a policy on your own? In this article, we’ll discuss the pros and cons to purchasing life insurance during opem enrollment, starting with the positive…
Here’s what we'll cover in this post:
Quick Article Guide
Here’s what we'll cover in this post:
During open enrollment season, new clients often call us to compare their employer’s group life insurance policy to purchasing their own policy outside of work. Employer policies are often referred to as “group coverage,” because the coverage is available to anyone within the “group.” Groups can be associations, organizations, or employers.
According to the Life Insurance Marketing and Research Association, since 2017, more than half of all supplemental life insurance policies were purchased through a “group.” The benefits of group life insurance are:
Convenience of Securing Coverage
For some people, purchasing a policy from their employer is the easiest option. Purchasing group life insurance can be as simple as selecting an amount of coverage and having the premiums deducted from your paycheck. However, this convenience usually comes at a higher cost, especially if you’re a non-smoker in average or better health.
Many people like the idea of not having to complete a medical exam to secure coverage. Although, several life insurance companies currently offer life insurance without a medical exam, for a lower rate than most group policies.
Affordability and Availability
With group life insurance, the insurance company evaluates the overall health of everyone within the group and then determines an average rate. This means that if your co-worker is the same age as you, you’ll both pay the same rates for your life insurance, even if they have health issues or use tobacco.
If you have severe medical issues–such as a history of heart disease, stroke, diabetes, or cancer–you may save money by buying a group life insurance policy. Smokers might also find a group policy advantageous. In extreme cases, group life insurance may be the only option you have to purchase life insurance.
On the flip side, if you’re in average or better health, purchasing life insurance outside the group will likely save you money. If you have minor health issues–such as high blood pressure, high cholesterol, or obesity–you’ll likely save money by purchasing your policy outside the group. Some life insurance companies are also extremely lenient with an occasional cigar smoker, e-cigarette users, tobacco chewers, or even well-controlled diabetics.
While the convenience of buying life insurance from your employer may seem like great reason to purchase coverage from work, there are some other factors that you should consider before making your final decision.
Here are some of the lesser-known drawbacks of purchasing a group life insurance policy from your employer.
Your Coverage Is Not Portable
While your current position may offer you a great deal on a life insurance policy, your next one may not. According to the U.S. Bureau of Labor Statistics, as of January 2020, the average number of years that wage and salary workers stay with their current employer is 4.1 years. This number has decreased, and will likely continue to decrease for the foreseeable future.
The probability of switching careers is something to be mindful of if you’re considering purchasing life insurance through your employer. You will likely save a substantial amount of money by purchasing your own life insurance policy and locking in the rates for an extended period of time. Most life insurance policies can be guaranteed for 10, 15, 20, 25, or 30 years, or even until age 90 or later.
*Keep in mind that your group coverage ends with your employment.
This means that you will likely lose your coverage if you are let go, retire, or if you develop a disability. Even if your own individual policy ends up being a little more expensive initially than the supplemental group policy your employer offers, it may be worth purchasing to ensure you’re still covered in the event you lose your job.
In addition, your life insurance policy will likely increase at least 20% to 50% each time the policy is renewed. Most group policies must be renewed every 1 to 5 years.
High Cost of Coverage
As we mentioned earlier, if you have any serious health issues, group life insurance may save you money or provide your only option to secure coverage. However, if you’re a nonsmoker without any severe medical issues, you should definitely shop around before purchasing a policy from your employer.
Remember, the cost of your policy is based on the mortality risk of the entire group, and life insurance companies plan for the worst. Unless you’re in poor health, you’ll likely save a considerable amount of money buying your own policy outside the workplace.
Rising Cost of Health Benefits
You may ask yourself, “What does this have to do with my life insurance policy?”
The answer is simple: in many states, your employer is required to pay for a percentage of your health insurance. Due to the rising cost of health insurance, many employers are eliminating their life insurance policies to stay within budget constraints.
Every open enrollment, we receive calls from potential clients who have lost their company-offered life insurance. To prevent this scenario, you may want to secure your own life insurance policy outside of work, especially if you have any progressive medical issues, or if you are over the age of 50.
Your Options Are Limited
The vast majority of group life insurance policies expire after 1 to 5 years. This means your life insurance rates are constantly rising and are not guaranteed. If you only need life insurance for a few years, group coverage might be a viable option, but most people feel more confident securing their rates and coverage for a longer period of time.
If you need permanent coverage, or a life insurance policy with rates that are guaranteed for at least 10 years, consult an experienced life insurance agent. Remember, just because your life insurance rates are guaranteed for 10 years, does not mean that you need to keep your policy for 10 years. You can cancel your term life policy at any time with no penalty.
You May Mot Be Able to Purchase As Much Coverage As You Need
Many group insurance policies have limits on the amount of life insurance that their employees can purchase (usually 2-3 times their yearly salary).
Depending on your age and the number of dependents you have, you may need a much larger policy to take care of your loved ones’ financial needs. Most financial advisers recommend the primary breadwinner of the household purchase a policy for least 5 to 10 times their current annual income.
Unlike smaller amounts of group life insurance, in many cases when an employee is looking for a larger supplemental policy, the carrier of the group policy may want to see medical records, or may even require an exam if a serious medical condition is found.
If you’re not sure how much life insurance you need, please read our article: “Do You Really Need 10x Your Salary in Life Insurance?” or use our life insurance calculator to help assess the amount of coverage you need.
You should always take advantage of the free group policy that your employer offers, but if you’re like most Americans, you’ll likely need additional life insurance. If you’re in average or better health, give us a call to compare your options before making your final decision. We are appointed by more than 50 top-rated life insurance carriers, which allows us to shop the market and find you the best deal.
Understanding that there is only a short period of time during open enrollment, we will work hard to provide you with the quick and accurate quotes you need.
Please keep in mind that it can take 4 to 6 weeks to get approved for a life insurance policy, so make sure you start the process early to allow enough time to secure the lowest rates available. If you’re in a time crunch, we also offer life insurance coverage without a medical exam–these policies are usually approved in a week or less.
Give JRC insurance Group a call today toll-free at 855-247-9555, or request a free quote below. Our services are free and there is no cost to apply for coverage.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.