Although you may be fortunate enough to be working for an employer offering benefits such as life insurance and long term disability through group coverage, it’s imperative that you recognize the difference between participating in your group benefit plan at the office versus owning an individually owned policy yourself.
The commonly held belief by those individuals who hold group life and disability insurance through their employer is that they are adequately covered. Unfortunately, despite the seemingly attractive benefit schedule there are a few concerns which all employees holding group certificates should consider, particularly if your group coverage is the only coverage you own:
1. Premium Concern
Group insurance premiums are apt to increasing every five years for the life insurance portion and every year for the disability insurance portion. Thus, there are no guarantees with respect to the premiums.
Contrast this to individually owned policies where premiums are guaranteed from the issue date. Life insurance is a unilateral contract, thus, so long as you continue to pay your premiums, your premium is guaranteed for the lifetime of the contract. The insurance company can essentially be put on the hook for your contract for a customizable period (10, 20, 30 years) or for your entire life.
If you purchase non-cancellable individually owned disability insurance, you also can benefit from having level premiums for the entire duration of the policy.
Moreover, since the group life insurance is based on all participating employees regardless of health, you may avail of an even cheaper premium on an individually owned policy if you can demonstrate you are in good health during the application process.
2. Portability Concern
Dozens of articles have been written in the last 20 years which have emphasized the growing job instability and increased autonomy of workers. Some of these reports state that on average workers will go through 7 career changes. What needs to be recognized is that when you change jobs, you’ll most certainly lose your group benefits. However, if you were to own an individual insurance policy you won’t need to be concerned about any gap in coverage between employment.
What’s more is that if you move jobs and have had a change of health, then based on a characteristic of group benefit policies known as non-evidence maximums you may no longer qualify for the amount of coverage you desire with your new employer, and may only qualify for basic coverage (eg. 1x gross salary).
3. Continuity Concern
With a group plan, there is always the possibility that the insurer or your employer may cancel or modify coverage for the entire group. You may have a premium increase if the insurer deems their to be a high incidence of claims in your group, or have it cancelled all together. Your employer could cancel the coverage all together for any number of reasons leaving you without coverage.
As mentioned earlier, if you own an individual plan so long as you pay your premiums the coverage will always remain in force.
4. Ownership Concern
As a member of group insurance plan, you hold what is known as a certificate of the plan, whereas your employer is the actual policy owner. Thus, your employer is free to make changes to the plan at any time.
When you leave a group plan, you have the opportunity, generally within 31-days of termination, to convert that policy without evidence of insurability into an individual plan. However, the products tend to be limited which to convert to and the premium conversion rates much more expensive.
Contrast this to an individually owned plan where you can make changes or cancel the policy.
5. Needs Concern
According to a recent article, many Canadian’s are still underinsured. It’s extremely important to get a handle on what the right amount of coverage you should own is, and often times simply opting for whatever your group plan offers without the careful completion of a proper needs analysis may leave you paying premiums for not only an inferior type of coverage, but an inferior amount of coverage as well.
Although group plans are an exceptional bonus to any employees total compensation package, they should not be viewed as a complete replacement to personal financial planning. This is best done through the assistance of a financial advisor.
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