One Easy Way to Lower Your Life Insurance Premiums
The following blog was originally published at Forbes. Read the original post here:
By Robert Schmansky
Many individuals sign up for group and spousal coverage through their employer’s benefit provider for the convenience, not often weighing their options or speaking to an advisor about their options.
And while group life insurance is a simple way to pay for coverage, and often the easiest way to guarantee it, it may not be the most cost effective way to obtain needed insurance coverage.
During a recent review for a healthy 50 year old male, currently paying ~$3,200 annually for approximately $1,000,000 of life insurance through a work group plan, we found a term life insurance policy that would cover him for 15 years (through the end of his employment) would cost approximately $750. Not only is the savings on the current year nearly $2,500, but the cost of the personal policy is locked in as opposed to the workplace policy, and it is guaranteed whether he works for the same employer or not over that 15 year period.
Why is group life insurance an expensive way to obtain life insurance? Mark Maurer of Low Load Insurance Services in Tampa provided the following answers:
Pricing negligence. Employer group policies start out very cheap at younger ages. By starting low and maintaining a low rate over a number of years, the power of complacency sets in with many buyers. Employees may know the price has risen, but likely has their coverage need, and they don’t often do the work to compare the cost to a personal plan.
Increasing claims. Group coverage is based on the health of the group, or actuarial data on the age bands that comprise the group. We all know as we age there are more deaths, and so the amount will increase over time.
Anti-selection. As we age, a higher percentage of people also develop health problems or continue with dangerous habits that place them in higher risk categories that may not allow them to purchase individual health policies. Since these individuals are more likely to stay with the more expensive group coverage, the cost of the group life insurance reflects the inclusion of these individuals with higher premiums.
The underwriting process when applying for individual insurance outside of your employer gives the insurer data to properly price your individual policy. According to Maurer, “At ages 40 and older everyone should evaluate the costs – healthier clients not only can pay less right away, but over 10, 15, or 30 years individual coverage can provide thousands of dollars in savings by going through underwriting.”
Even if you are young, you may benefit from locking in personal coverage since rates will rise eventually. Personal insurance policies, as well as those for spouses, will be there whether or not you’re at the same employer (or employed), or if you no longer qualify for coverage. Keep that in mind before signing up for additional coverage through your employer.