If You Still Have Group Life Insurance, You Probably Also Have a Land Line.....

For some of us, we remember a time when everyone, and I mean everyone, had multiple telephones mounted to walls in their homes.  Teenagers loved to have their phones on extremely long cords, sometimes even reaching down the hall into the bathroom.  And, we all had that one cool friend who had their own "dedicated" phone number so their social life was not dependent on whether or not someone else in the household was tying up the only phone line. 

But, times change....and the life insurance landscape has changed just as much over the last couple of decades.  There was a time when Group Life Insurance that you obtained through your employer was a pretty good deal.  It was sold to large numbers of insureds, and therefore a reasonable rate was able to be negotiated.  But, this was also back in the day when Individual Term Life Insurance policies had "annually renewing" premiums--in other words, the price went up a little bit each year as you got older.  Group policies were locked in for 5 year increments, which also made them more appealing than the annually renewing nature of individual policies.

Fast forward to the modern day life insurance market where we all have become accustomed to the very long term guaranteed policies--10, 20, even 30 years or more!  The consumer is able to lock in a guaranteed premium for as long as he or she will likely need it.  And, what's even better is that rates for term life insurance are practically at a historic all time low.  Yet, I still seem to run into far too many people who seem to think that group insurance is the way to go.  I can't tell you how many times I will hear "Well I have a "Group" policy so there's no point in looking at my coverage since we get such a deal with the group."

If the policy is the typical "group" policy, which is the type offered by the Federal, and State Governments, and larger companies, then nothing could be farther from the truth.  It is a common misconception that a "group" rate will be cheaper since it involves a large number of paying customers.  The reality is that they are outrageously more expensive than individual insurance.  The key difference between group and individual coverage is the fact that individual policies are medically underwritten and therefore healthy individuals are rewarded with very low premiums.  The typical group policy features no underwriting and everyone is automatically guaranteed coverage at the same price---yes, the SAME price whether you smoke, have diabetes, or even cancer.  So, when you start to realize this and think about it in those terms, it becomes clear that the companies must take into account the overall health of the group and offer a very mediocre rate.  And, the way they further compensate for all of the unhealthy folks within the group is to increase the premiums as you get older.  The cost per thousand can start doubling every five years once you reach your 40s or 50s.

How do so many people get trapped in the group life insurance myth?  Well the policies are a bit sneaky in that they start off pretty inexpensive when employees tend to first join in their 20s or 30s.  And, the way most employees pay is structured, they are likely getting paid twice per month, so their life insurance premium is deducted twice each month, making the cost and the increases less noticeable.  As the cost starts creeping up over the years, many people honestly don't even bother to look at it, until maybe they talk to me and I have them pull up their pay stub!  I've encountered a few people over the years who were paying $500 or $600 per month for their life insurance and had absolutely no idea.

If your health is reasonably good, then you should always seek an individual policy whereby you will be underwritten and rewarded for your good health with a low premium--there's no reason you should have to pay more money to subsidize the cost of the smokers, and unhealthy members of the group.  Because of the fact that the group policy rates increase every 5 years, when you compare the 20 year cost with that of an Individual 20 year policy with a level premium, the difference is staggering and can be thousands if not tens of thousands of dollars more. 

Another big disadvantage of group coverage is that the company, not you, says when it ends, and that is when you retire.  Well, most have some sort of option post retirement, but that usually involves a dramatic premium increase, sometimes while your death benefit begins to decrease. 

The vast majority of people, even those with minor health problems, are going to pay far less over a 20 year period by locking in a level premium, than they will by weathering the storm of the dramatically increasing group coverage.  We've gone from land lines to cell phones, so consider getting current with your life insurance too!