Eighty-five percent of Americans believe that most people need life insurance, but just 62 percent actually have it. If you’re ready to make a move and purchase your own policy there’s one key question you need to answer: company or private?
Which should you choose?
Company Life Insurance is Cheap
One of the greatest advantages of life insurance offered through employers, called company life insurance or group life insurance, is its low-cost. Many companies offer life insurance policies at little or no cost to their workers. Any cost to employees is typically garnished directly from their wages, so they never miss the money or worry about making the payments.
Individual Life Insurance Could be Affordable As Well
Just because company life insurance is inexpensive, that doesn’t necessarily make individual life insurance costly. Depending on your age, health, and lifestyle, it could even be cheaper.
That one-size-fits-all model of company life insurance actually works against some employees. It might be affordable across the board, but if you’re young, healthy and a non-smoker, you might be able to find a better rate on a comparable policy if you go it alone.
And unlike a company life insurance policy, insurance companies typically offer applicants a guaranteed level-premium term life insurance, which will cost the same amount every year for the life of the policy. In contrast, your company life insurance policy will get more expensive as you age, so what started out as a great deal might not seem like one as you near retirement.
These policies typically incur premium increases every five years due to something called moral hazard. Workers who might be too unhealthy to purchase an individual policy tend to overload the company insurance system, so insurance providers offset this by charging higher premiums over time.
Individual Life Insurance Can be Customized
While company life insurance policies typically take a one-size-fits-all approach, individual life insurance plans are much more personalized. You can choose the type of policy that suits your lifestyle, as well as any special features.
If you’re not fussed about the details, all that choice might seem daunting. However, if you want to make sure you’ve got the best life insurance policy for your circumstances, it probably pays to invest in an individual policy.
Company Life Insurance is Easy to Get
Many life insurance providers ask potential policy holders to take a medical exam to assess whether they’re a good risk. If any medical problems are detected, insurance companies often increase the amount of the premiums or refuse to cover applicants altogether.
In contrast, companies generally offer life insurance policies without such medical exams. This makes them much easier for employees with ill-health or high risk lifestyles to obtain. If you opt to purchase additional coverage beyond this basic level, you may need to answer a few questions about your health or take a simple medical exam. However, this medical exam is rarely as comprehensive as the full physical required to obtain an individual insurance policy, so it’s much easier to pass.
Company Life Insurance Can be Adjusted
While company life insurance is generally considered a one-size-fits-all model, most providers allow policyholders to purchase some additional coverage following a family status change, or decrease it as needed. Your specific benefits plan will outline which family status changes are acceptable. For example, you may want to increase your coverage if you marry, have children, or purchase your first home. If you divorce your spouse or they pass away, you may like to decrease your life insurance coverage. In some cases, an increase in coverage may be applied automatically, such as in the event of a salary increase.
Individual Life Insurance Can Give You the Coverage You Need
Forty percent of Americans with life insurance coverage believe that it isn’t adequate. Perhaps these concerned citizens should switch their policy to individual coverage, or purchase additional coverage through another insurance holder.
In most cases, a basic company life insurance plan cannot sufficiently meet the needs of an employee’s dependents. Additional coverage of four to six times the employee’s annual salary is often available at a low rate, yet experts suggest policyholders may need coverage of between 10 to 12 times their salary to provide for an unemployed spouse and dependent children, particularly if the family is large or has special needs children or a large mortgage. This higher payout is only available through an individual life insurance policy.
Individual Life Insurance is Always With You
When you choose an individual life insurance plan, you can take it with you when you move from one job to the next, and even retain it during periods of unemployment so long as you can pay the premiums. However, company life insurance is generally terminated once your employment ends. You’ll also lose your coverage if your company becomes bankrupt, or even if you switch from full-time employment to part-time duties.
Perhaps your employer might decide to cut their life insurance plans altogether to save money. All of these situations can cause gaps in your coverage, which may be costly.
You might be able to avoid this gap by converting your company life insurance policy to an individual one, but it’ll probably be more expensive. The products available for conversion are typically limited, so it’s likely that you could find a more cost-efficient policy if you shop around. Of course, that depends on your own health though. If you can’t be medically underwritten for a new life insurance policy, coughing up the money for a conversion may be your only option for retaining coverage.
Your Health Isn’t Continuously Assessed on an Individual Life Insurance Policy
You might think that you’ll get a company life insurance policy now, and then think about upgrading to an individual life insurance policy as you get older and more likely to need additional benefits. However, it might not be quite that simple.
As you age, you’re likely to have more health complaints, which could see you paying higher premiums on an individual policy, if you can obtain one at all. In contrast, if you get an individual life insurance policy early, you’ll lock in your affordable rate before your health has a chance to decline.
Both company and private insurance policies have their benefits, so you should examine the plans closely to decide which one will suit you best.
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