Life insurance is, and should be, a key part of every family's financial planning process.
However, there are many different ways of obtaining life insurance coverage to protect your family. For example, life insurance can be offered through your employer, an alumni association, a professional group, or by purchasing it on your own. In this entry, we will review these methods of obtaining life insurance , and the pros and cons of each type of coverage.
Getting Life Insurance through your Employer
Purchasing life insurance through your company is a very popular strategy people in obtaining coverage. Generally speaking, these products are offered as part of a group life plan, which means that there is little or no underwriting. Instead, the policies are offered to everyone, and the insurance company takes the aggregate average health of the insured based solely on age.
While this coverage is easy to obtain, there are several disadvantages of getting life insurance this way.
- Your coverage is usually capped at a certain level. Typically this is based on your earnings, and does not take into consideration any personal situations such as number of kids, spouses career, or length of time the coverage is needed.
- Group life insurance purchased through your employer is usually more expensive than going out into the market to obtain your own coverage.
- Many times, life insurance coverage obtained through your employer is not portable. Portability is the ability of life insurance to stay in force, even when you leave your company. This can be dangerous if you are forced to make a job change, or if you are laid off.
- You usually only have 1 insurance company to choose from, and very limited product options
On the other hand, group life insurance offers the following benefits
- Since there is no individual underwriting, you can usually get coverage very quickly.
- If you have any health concerns, this is a great way to obtain a policy without disclosing too much about your health.
- Sometimes, this insurance can be paid for by your employer as a benefit
What Course of Action is the Best?
Each person's individual situation determines the best strategy for obtaining life insurance. Usually, if you are healthy, the best course of action is to purchase your own fully underwritten personal policy outside of your company. By going this route, you can tailor your coverage according to your family and financial needs. In addition, having your own policy means that it will follow you regardless of which company you work for instead of residing with your current employer.
On the other hand, if you are not healthy, you would be much better served to obtain coverage through your company since there is usually no underwriting involved.
