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Group life insurance versus individual life insurance

Getting group life insurance through your employer may seem like a no-brainer. You don’t have to buy insurance yourself, you usually don’t have to undergo a medical exam, and coverage is often free (or close to it).

By that logic, group life insurance is an easy and affordable way to get the coverage you need, right? Well, the answer is… not exactly. Group life insurance is a nice benefit of employment but can lull you into a false sense of security. You can end up with too little coverage, only to lose it when you leave your job.

So, is group life insurance really enough? Or should you protect your loved ones by purchasing individual life insurance?

We go over the pros and cons of both types of life insurance so you can make the best financial decision for you and your family.

What is group life insurance?

Group life insurance is a type of life insurance that covers… well, a group. You only need to be a member of that group to qualify for coverage ̵

1; no medical exam or extra hassle required. The premium prices are the same for everyone covered by the insurance.

Some employers offer group life insurance as part of their benefits package, but you can also join group policies through unions or organizations like AARP. With employer-sponsored insurance, you usually sign up during an open enrollment period or when you start a new job.

Like other whole life policies, group life only covers you for a certain period, usually until you leave your employer or organization. So if you join insurance through work but then change jobs, get fired or retire, you’ll lose your coverage.

Group policies also limit the amount of coverage. If you get life insurance through work, your insurance amount can be set in a couple of different ways:

  1. Everyone at your company qualifies for the same low benefit amount – usually between $10,000 to $50,000.
  2. Your employer takes your annual salary and multiplies it by one or two. So if you earn $45,000 a year, you can get up to $90,000 in coverage.

In other words, your beneficiaries may receive enough to cover funeral costs and other end-of-life expenses if you die before you leave work. But that death benefit won’t replace your lost income for more than a year or two, or provide enough to send your kids to college.

What is individual life insurance?

Unlike group life insurance, individual life insurance is purchased by only one person and covers the same person. When you apply, you fill in a questionnaire about yourself, your lifestyle and your medical history. Depending on the insurer and policy, you may also need a medical examination.

Insurance companies use this information to assess how risky you are to insure, and they use this information to set your premiums and determine how much coverage you qualify for. For example, you might only get $50,000 in life coverage through work, but be eligible for a few million dollars with an individual policy.

There are two main types of life insurance coverage: whole life insurance and term life insurance. They have different features, so you want to choose the type of insurance that best suits your financial situation.

Whole life insurance policies

Whole life insurance, which is a form of permanent insurance (like universal life), provides lifelong coverage, so your death benefit is guaranteed as long as you pay your premiums. And both have cash value components that build up over time, allowing you to:

  • Take out a loan against the insurance
  • Withdraw money
  • Use the accumulated cash value to pay your life insurance premiums
  • Surrender your policy for its cash value

The trade-off between permanent policies and cash value:

  • Any money you withdraw or borrow reduces your death benefit, so your loved ones get less
  • Surrendering your policy means canceling it, which eliminates your death benefit
  • The cash value can take a long time to accumulate, so you can wait decades to access a significant amount
  • Permanent insurance policies are expensive. You will pay much more in premiums than you would for an equivalent life insurance policy
  • Your financial situation changes over time. So in the future you may not need the lifetime coverage, but you will pay more for it in the meantime

On average, a 30-year-old man in excellent health will pay about $4,652 annually for a $500,000 whole life insurance policy.

For many, term ends up being the better and cheaper option for coverage.

Thermal life insurance

With life insurance, you get coverage for a predetermined period, known as the term of your policy. Most terms are between one and 30 years, with five-year increments being the most common.

Term insurance is a simpler form of life insurance than whole life insurance. They have no cash value or extra moving parts, so all you need to keep track of is your premium payments and term. If you make these payments and die during your term, your insurer will pay your death benefit.

If your term expires, you no longer owe premiums, and even better, you’re still alive. (You may also have the chance to renew your policy or buy a new one, albeit at a higher premium.)

You can choose a semester length that suits your current financial situation. For example:

  • If you have young children, you can take out a 20-year policy with the amount covered to cover the time they live at home. You can feel safe knowing that, no matter what, your partner or spouse will have the money they need to raise the kids and send them to college.
  • Some debts, such as personal loans, only take a few years to pay off, but would still be a burden to your loved ones if you died. So you can take out a 10-year policy to cover the cost.
  • If you have a mortgage, you can take out 30-year insurance for the years until the mortgage is paid off.

Remember when we mentioned that 30-year-old man in excellent health? That same guy would pay $19.04 a month for a 20-year Haven Term policy worth $500,000 — about $228.50 a year, or $4,423 less than he’d pay for an equivalent whole life policy. Over the life of a policy, that adds up to nearly $90,000, making life insurance much more affordable for most people.

Who needs what?

Still on the fence about whether you need group life or individual coverage? Then ask yourself the following questions:

  • Do you have large co-signed debts, such as student loans or mortgages? How much money would it take to pay them off?
  • Do you have a spouse or partner? Do you want your death benefit to cover their future needs or pension?
  • Do you have children still living at home? What would your spouse (or other responsible party) need to raise them and send them to college?
  • Are you the primary breadwinner? What would it take to replace your lost income?
  • Do you need to support a child with special needs or an aging parent? How costly will their future care be?

You probably need additional coverage if you answered yes to any of the above. Group living may be sufficient if you are young, single and have no debts or dependents – at least until your circumstances change.

The costs of life (and death) are increasing rapidly. Many people will need life insurance worth five to ten times their annual salary to cover these costs. That’s a lot more than you get with a group life policy.

To be clear, group life insurance coverage can be important to provide for your loved ones. And it can offer affordable, guaranteed coverage for older workers or those with pre-existing conditions. That alone is usually not enough.

Secure your family’s financial future with Haven Life

If you are looking for affordable life insurance coverage, at a sum assured that is sufficient for you and your family, Haven Life is here to help. You can start by getting a free life insurance quote online, and our application process is completely online.

Some applicants may even receive immediate approval, without a medical exam, although issuance and coverage depends on you being honest and transparent in your application.

There’s also Haven Simple, which offers coverage without a medical exam. The trade-offs are slightly higher premiums and a slightly lower coverage cap, but you can get up to $1 million worth of insurance at an affordable price, again assuming you’re truthful in your application.

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