If you are one of the millions of Canadians whose employer offers a group benefits plan with life insurance coverage, you may be thinking if individual life insurance is still needed to protect your family. In this post I’ll outline some of the basic differences between the two products so that you will have a clearer picture on whether or not you should buy individual life insurance.
Amount of life insurance coverage
In order to keep the cost of the benefits plan low, most employers opt for a low flat rate or a multiple of your salary. The flat rate is usually in the range of $25,000-$100,000, and the multiple is 1 or 2 times your salary. Whether or not this is enough depends on your cash and income needs at death. For example, if you want your family to not have to worry about paying off the mortgage and other debts, funeral costs, education funds for the children, and income needs until your children are independent, then the amount of coverage offered with group life insurance is certainly not enough. You can purchase an individual policy to top off your life insurance needs.
However, if all you want is for them to have the money to bury you, then your group coverage should be more than enough. The ‘how much?’ question will be a topic of discussion for you and your spouse, as I’m sure you both have your own thoughts and ideas on the right amount of coverage.
Change in the coverage
The biggest drawback to having group life insurance through your employer is the lack of control. Since the policy is owned by your employer, he has complete control with regards to the amount of coverage and has the option of terminating it at any time without further notice. These cost cutting arrangements are uncommon, but still one that you should prepare for, especially if you’re relying on it as your only source of protection, since you risk losing it one day when you need it the most. What if your employer cuts the benefits after you’ve developed health problems which precludes you from buying individual life insurance?
On the other hand, an individual life insurance policy is owned by you, and the insurance company is legally bound to continue coverage as long as you renew your policy. You have the choice of reducing or increasing the coverage, cancelling it, converting it, as well as options that are not available on the group side, such as using the policy as collateral for a loan.
Other things to consider
A couple of other points to consider are portability and preferred rates. Portability refers to the ability to convert the group coverage into an individual term policy if you change jobs. Also, group insurance is issued at standard rates, and employees who display excellent health and lifestyle habits are unable to benefit from the preferred rates of individual policies. The discount may be up to 30% off standard rates.
There are lots to think about when you have group life insurance in place and wondering if individual life insurance is suitable for you. When you are planning the financial security of your family, please be sure to take these points into consideration. Does your employer currently offer group life insurance? Are you thinking about buying more life insurance to top it off?
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