Most of our clients work for employers who offer group term life insurance policies. The employer generally pays for some amount of coverage as an employee benefit, and permits the employee to buy additional coverage via payroll deduction. Employees never see those premiums in their paychecks, making the payments relatively painless. They assume that as part of a larger group, they’re getting a good deal. It’s often the opposite.
Since the amount offered by the employer is guaranteed, healthy people in the group are subsidizing the less healthy members. For those choosing to purchase additional coverage, underwriting is often streamlined. This sounds wonderful, except it has the same pricing for all of like age and sex. So, if you’re in great health, it’s very likely you can save money purchasing your coverage privately.
There are more problems with carrying a lot of your coverage through your employer. The first is that of portability. When an employee separates from service, the insurance is either lost or has to be converted to a permanent form of coverage. Losing coverage can be devastating if one isn’t insurable any longer, and conversions result in a far higher premium than were previously paid.
Folks assume that if they’ve been declined for supplemental coverage through the group, that they are ineligible for coverage anywhere. This is simply untrue. Often the problem is one of limitations in underwriting referenced above. If you’ve been declined, you should try again with private insurance.
Last, and far from least, is the increasing nature of these premiums. The insurer can change the rates, or the employer can change insurers. Here’s the real kicker: as we get older, and closer to our demise, insurers need more premium to cover their risk. Policies frequently have 5-year age bands, so when you go from 49 to 50 you get a very unpleasant surprise – a significantly higher premium. The older you are, the more the increase will be when you hit the next band. While you may not notice it that much going from 29 to 30, you will surely notice when you hit the big 5-O.
A client recently approached us with this very situation. The group term he paid for had a face amount of $433,000 and was set to increase from $608 per year to $898. He was in good health and didn’t mind going through underwriting if it was going to save him money. He ended up qualifying for a policy that locked his premium in for 10 years at $547 per year. Had he desired a longer period; he could have locked in for 15 years at $732 per year. This represented significant savings over his premium through his group, even without considering additional premium increases that would come down the pike at age 55 and again at age 60. And should he decide to change employers, the policy won’t be impacted one bit.
Oh, and don’t believe everything you read online. You’ll often be quoted a super low rate to get you to apply. A professional agent will ask a host of questions before providing a quote, making it less likely that you’ll be declined or have your policy issued with a higher premium. Think buying online offers cheaper policies by eliminating human interaction? Rates are the same whether you use an agent or not. They are published by the individual carriers and approved by the States insurance departments. And no agent can get you a better rate with a particular carrier than another agent can. Agents don’t make underwriting decisions, either.
Regardless of what was quoted to you initially, underwriters employed by the insurers gather all the information and extend an offer. If you’re less of a risk than initially thought, you’ll be offered a lower rate. If you’re a higher risk, your rate will reflect that additional risk.
Interested in seeing if a policy you purchase outside of your workplace will be a better deal for you? Contact our office and request a quote. It will cost you nothing and may save you a bundle.
