Sunday, April 12, 2015

Just because you have group life insurance through a job doesn't mean your dependents are fully protected in case you die.

Your group life insurance coverage probably isn't sufficient to support a family. If your death would hurt anyone financially, then you likely need individual life insurance -- the kind you buy on your own -- in addition to the coverage you get through an employer's benefits package.

Why is group life insurance inadequate? Consider the following limitations:

I. You Can't Always Take it With You

Typically your group life coverage ends when you quit or are laid off. And your next employer might not offer life insurance benefits.

Leaving or losing a job could put you in a tricky spot if you developed a serious health problem while relying on the group coverage. You could have trouble qualifying for individual life insurance at affordable rates. 

That's why experts recommend buying life insurance when you're young and healthy; premiums for individual life insurance go up as you age and develop health conditions.

II.  The Death Benefit is Often Small
Most employer-paid coverage is for a small amount -- often one to two times your annual salary. That's a nice perk, but it's not enough if you want the death benefit to support a family for more than a year or two. Some employers let you buy additional coverage without supplying health information, but those amounts may be limited, too.

With an individual policy, you decide how much to buy based on your budget and your needs. Term life insurance is cheap. A healthy 30-year-old will pay an average of $150 a year for a 20-year, $250,000 level-premium term life policy, according to research by LIMRA and Life Happens, a nonprofit that educates consumers about life insurance.

III.  You Have Fewer Choices of Riders

You can customize a policy you buy on your own by choosing from a variety of additional features called life insurance riders. You can't always customize the life insurance benefits your employer buys for you, and if you can, the options may be limited.

IV.   The Employer Can Cancel The Coverage

You own the policy when you purchase individual life insurance. But the employer owns the group policy and can eliminate the benefit to trim costs.

V.  You Can't Borrow From a Group Life Policy or Cash it In
Only permanent policies, such as whole life or universal life, feature a cash value component, which is an accompanying savings account that accumulates on a tax-deferred basis. You can borrow from the cash value and use the money for any purpose, whether it's to pay college tuition or supplement your retirement. You can also surrender the policy for the surrender value. Typically the life insurance offered as an employee benefit is term life, which has no cash value.

If anyone depends on you financially, then you need life insurance. To determine how much and what type of life insurance to buy, calculate how much money your dependents would need if you died tomorrow and for how long. Think of your group life insurance as a nice supplement to individual life insurance.


John L. Nunes
President & CEO
J. Nunes Financial
Office: 510-629-3568