19 March 2012 0 Comments

Is Buying Life Insurance from a Lending Institution a Good Deal? What About Life Insurance from Your Employer?

Last time, I gave you some tips for determining a term duration for your Life Insurance policy. In this entry, I’ll discuss whether or not you should purchase Life Insurance from a lending institution. I’ll also address the pros and cons of Life Insurance provided by an employer.

But first, let’s cut to the chase: Beware of mortgage lenders who approach you with an endorsed policy. They are usually pushing the policy of one company – as opposed to shopping several companies for your best price – and they tend to be driven more by high commissions than low premiums.

Credit Life Insurance offered with a consumer loan is usually not a good deal.  You could increase personally owned term for a better premium. The exception might be if you have a medical history or lifestyle issue (e.g., if you’re a race car driver, test pilot, drug addict, or convicted felon) that would make it difficult for you to obtain low-cost Term Life Insurance individually. Usually, the lending institution will only ask a few questions regarding your insurability – and overlook factors that could prevent you from obtaining personal Life Insurance.

If you are insurable, make sure you have enough personally-owned Term Life Insurance to cover all loan obligations.

What about Life Insurance provided by an employer? If your employer is paying for the entire premium, sign up! Even if they’re only paying for part of the premium, it’s probably a good deal. Before you sign up, though, check with your insurance agent to see how the amount you are required to pay compares with the cost of buying your own policy. If there is no economic advantage to an employer-provided plan, it’s always best to control your own policy.

If an employer provides you with Group Term Life Insurance (as defined under Section 79 of the Internal Revenue Code), you are required to report income  based on an IRC table for the premium paid by your employer on any amount of insurance in excess of $50,000. If the policy provided by your employer does not qualify as Group Life Insurance, you will be reporting the actual premium paid by your employer for the full amount of the policy. In either case, reporting any amount as income costs you less than paying the premium yourself – assuming we never get to a 100% tax bracket.

Coming Up Next: More Facts About Employer-Provided Life Insurance

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