23 March 2012 0 Comments

More On Employer-Provided Life Insurance

Last time, I started with the perils of buying Life Insurance through a lending institution and ended with a discussion of employer-provided coverage. In this entry, I’ll continue to address the pros and cons of Life Insurance through the workplace.

It’s never a good idea to depend solely on Life Insurance provided by your employer. If your benefit is provided under a group policy (i.e., when your employer holds the policy and you have a certificate), your coverage will be discontinued when you are no longer an employee. You will have a right to convert the Term Life to an individual Whole Life policy when you leave your place of employment, but that will be at a very high premium based on your age when you leave. Typically, the only people who go for this high-priced conversion are those with health or other risk factors that render them nearly uninsurable.  The insurance companies know this so don’t expect a competitively priced policy.  If you believe you might have a problem qualifying on your own, obtain the conversion prices from your employer.  No agent makes a commission on a group conversion so you may have to do some digging to find out what is available.  But get on it because you’ll only have 30 days following termination of employment to exercise this option.  If you want to continue life insurance protection get your agent involved immediately to see if you can qualify for a better policy.

With employers being continually bombarded with ever-increasing employee benefit costs, many of them may decide to reduce the amount of Group Life Insurance they provide.  If you lose group Term Life Insurance as a result of the employer eliminating or reducing coverage, you do not have conversion rights as you would if you simply left their employment.  As an employee, you may have plenty of Group Life Insurance today – and none next month. Nothing is as certain as owning your own policy.  Purchase Term Life Insurance you control equal to 10 times your annual income and consider the group insurance icing on the cake.

If your employer is offering individual polices for you to purchase through payroll deduction, you may have a right to continue that coverage if you are no longer employed. However, the premium might increase when you are billed as an individual. Even while you continue to be employed, the premium on these policies is often not guaranteed.  You may also not have a choice of the duration of this policy. The convenience of purchasing through payroll deduction isn’t worth a non-competitively priced, inflexible policy. Buy from your own agent if he or she is even close on price, and make arrangements to pay premiums through a monthly check draft —certainly as convenient as payroll deduction.

Coming Up Next: Taxation of Life Insurance Proceeds

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