A while back we looked at insurance coverage and the effects that inflation can have on it. Insurance plays an important role in the financial success of many people. Due to the importance of insurance, it is critical to ensure you have enough coverage.
Many employers will offer some form of group coverage: health insurance, life insurance, disability insurance, etc. Because of the coverage offered by employers, a lot of people might not see additional personally owned insurance as necessary. However, there are some benefits to personally owned insurance that you do not get with group insurance. For that reason, personally owned insurance can be a key component of many financial plans.
Group benefits are not designed to cover all the life insurance needs of the employees. The goal of group insurance is to help with insurance needs and provide a benefits package to retain employees.
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Group Insurance Coverage Stops If You Leave
When you change employers, quit, or retire, the coverage you are provided under the group plan stops. This is because you are not actually the one that owns the policy. In some instances, you will be able to convert the coverage into personally owned coverage. However, the majority of the time this is more expensive than applying for new coverage and is generally only advisable for those whose insurability is in question.
You Are Not In Control
With group insurance coverage you are not the one that owns the policy, the employer owns it. The contract is between the insurer and the employer.
This means that employers have the ultimate control over what happens with the policy. If they want to change or cancel benefit plans, they can. It is important to stay up to date on any changes that are implemented in your group benefits. You don’t want to assume you have sufficient coverage to later find out it isn’t sufficient when you need it.
Group Insurance Often Isn’t Enough
Group insurance is not designed to cover all your insurance needs. This is particularly true with the life insurance component of the group benefits.
With group benefits, the life insurance component is generally based on the employee’s salary. In a lot of cases, the employee will automatically be enrolled with 1 or 2 units of insurance. 1 unit is generally equal to one year’s salary. They will then be given the option to purchase more units. Sometimes to purchase additional units, the employee must provide proof of insurability. In some group benefit plans, coverage will be up to 5 units.
However, even if coverage is 5 units, in a lot of cases that will not be sufficient. The average salary in Canada is roughly $55,000. The average mortgage in Canada is more than $300,000. Lastly, the average non-mortgage debt is around $25,000. This means there is roughly $325,000 of debt to pay off in event of the average Canadian passing.
In addition to covering off debt, there are also dependents to look after, final costs associated with their demise to cover, etc. For many people, $500,000 of coverage, especially where there are dependents like a spouse and kids, is a good starting spot. Often times $1,000,000 of coverage is not a huge surplus.
That means many people should have anywhere from 4-10 times the amount of insurance that is provided by group plans.
Group Insurance Stops At a Specific Age
Most group insurance plans will end at a specific age, generally 65 or 70. Some will offer conversion options allowing you to convert the coverage to a personally owned policy. If you are lucky, some group benefit plans will offer some of the benefits to retirees. However, this is generally only if you have a pension with them and keep it there throughout retirement.
For many people, this is sufficient as they do not have a need for insurance later in life as they can then self-insure. However, for some people, there is a continued insurance need late into life. In this circumstance, personally owned insurance policies are superior. With personally owned policies, there is the ability to keep insurance coverage in place as long as desired.
Premiums Are Not Fixed
With group insurance benefits, the premiums are generally broken into brackets for 5 year periods. This means that between the ages of 20-24 your premiums are fixed. Then your premiums will increase slightly, and stay the same for the next 5 years 25-29.
However, if you were to have a personally owned policy, you can purchase a term-10, term-20, term-to-100, where premiums would be fixed for the length of the term.
Personal Insurance comes with an Advisor
When you are looking at obtaining personal insurance coverage, often you will be speaking with a professional Insurance Advisor. An Insurance Advisor will work with you to understand your needs and requirements for insurance coverage, then advise on gaps in coverage and recommend policies and products that are appropriate for your particular circumstance.
While you may get some seminars and information packages with your group plan at work, access to personalized advice through a group plan is generally limited.
Group benefits and group insurance are great for those that have been given the opportunity to participate in those programs. However, not all group programs are equal. Sit down with your financial planner, see if the group premiums are worth it or if a better deal can be found elsewhere.
Also, remember to stay updated on any changes to the group plan as these changes could adversely affect you. Review your coverage regularly and if you are thinking of changing jobs or retiring talk to your adviser and see what your options are when it comes to the group insurance.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy