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The Good That You Do: Offering Group Life Insurance to Your Employees
May 2010
Monte Marshall
With all the different types of life insurance policies offered and all the companies who offer those policies, consumers can have a hard time deciding where to go for their life insurance needs. One good place they can start is their Group Life Insurance offered as a benefit through their employer.
There are some significant advantages that are seldom found in the life insurance market that are found at work. The first is that everyone gets an opportunity to have coverage up to a certain amount regardless of their health if the employer is paying the premium on behalf of the employees. Usually it is a set amount of $50, 000 or 1 times their salary, as examples. Employees will also have the opportunity on a voluntary basis to buy more up to a certain amount with no health question called a Guaranteed Issue. Companies who offer Group Life Insurance will even go a step further and offer additional amounts with only a handful of health questions. Depending on what the company is willing to offer, an employee can buy even more, but would have to go through the full underwriting process which usually includes a blood profile, urinalysis, and exam.
So for those people who may experience difficulty obtaining the life insurance that they want and need due to medical reasons, employers are giving them a great opportunity to at least get some coverage and get started. This can be a great benefit to many and a convenience to all.
Secondly, purchasing life insurance this way is usually very low cost. Insurance companies are spreading their risk among lots of people. They know that they will have a certain amount of people with health issues (remember there are no health questions up to a certain amount) but they also know that they will get people in that same mix who do not have any significant health issues. They also know that most people will not work at the same place for 20 or 30 years which was more common years ago. So there is a much greater chance of someone retiring or simply changing jobs than to have a premature death will working. Therefore, employees get to enjoy very low cost premiums for their life insurance that can be deducted from their paycheck. Most companies will also give a two year rate guarantee and will offer insurance on spouses (usually half of what the employee bought) and children (usually $10,000) with no health questions.
Be careful though, employees who get very low cost life insurance with no health questions get what they pay for. Some companies allow you to take the policy with you if you retire or change jobs, but most don’t. Be sure you know how your plan works and see if the policy is portable.
Also, if your employer is paying the premiums on behalf of the employees, chances are that the insurance amount will decrease at certain ages if still employed while still paying the same premium.
If either portability is a problem or if you need for your life insurance to remain level during and beyond your working years, there is a good chance that you need to research an individual plan such as term life, whole life, etc. depending on your needs and desires.
Another area to be cautious of is whether the group policy uses age banded rates or composite rates. Depending on your age, one might be very inexpensive and the other puts the bulk of the expense burden on you. To explain further, a composite rate is one rate that everyone gets. If you are very young, you are paying the same rate as an older employee and the cost is averaged. It would be better for you to have age banded rates. On the flip side, an older employee might want the composite rate because he or she would otherwise pay a higher amount if the costs were age banded. It depends on the size of the company and the age mix.
At the end of the day, your employer is doing a great thing by offering Group Life Insurance and even better if they are willing to pay for it. So if you are one of those employers reading this article, hats off to you for doing a great thing. If you are employee and work for a company who does not offer Group Life Insurance, urge your employer to find out the facts. They might be surprised just how easy it is and just how little it costs.
Monte P. Marshall is an insurance agent in Birmingham, AL and can be contacted at the following address:
Two North 20th St.
Suite 1500
Birmingham, AL 35203
205-244-8652 Office Direct
205-908-6851 Cell
mmarshall@finsvcs.com
Monte P. Marshall is a registered representative of and offers securities through MML Investor Services, Inc. Member SIPC (www.sipc.org). Supervisory Office: Two North 20th St., Suite 1500, Birmingham, AL 35203-4015, 205-244-1141.