Canadians are clearly seeing the benefits of having a life insurance policy, with 57% of Canadian adults revealing they have life some form of insurance coverage, per a recent study by LIMRA, the largest trade association supporting the insurance and related financial services industry. This represents a three-point increase from a similar study conducted by LIMRA in 2019.
If you’re young and healthy, you may feel you have plenty of time before you have to worry about life insurance. Or, if your work offers a group life insurance plan, you may think the issue is done and dusted.
But, if something were to happen to you, the last thing you’d want your family to have to worry about is money — and employer group life insurance policies don’t provide the total peace of mind you may think they do.
Here, we’ll demystify how these plans work and why you may want to consider signing up for an individual life insurance policy.
What is employer life insurance and how does it work?
As part of their employee benefits packages, many workplaces offer a group life insurance plan.
These plans generally provide your family with a death benefit based on a low set coverage amount. Coverage amounts typically range from $25,000 to one or two times your annual salary.
The life insurance benefit is triggered only if you pass away while still a member of the plan, and the sum is bound to fall short when your family needs support the most.
A closer look at group insurance plans
That’s not to say you shouldn’t sign up for a group insurance plan when it’s offered to you. There are a number of benefits to this type of insurance plan, including:
Affordability. Your plan sponsor would pay for most if not all of the costs associated with this type of plan, which makes it a pretty affordable option.
Convenience. With a limited amount of paperwork involved, signing up for these plans is easy. Usually, you don’t have to think about making the payments, since they can be taken through payroll deductions.
Guaranteed enrolment. With this type of plan, you’ll get to skip the medical underwriting part of the life insurance process. You’ll only need to go through that process if you’re rejoining the plan after declining coverage, or if you’re seeking additional coverage beyond the plan’s scope. This is a great option for those that have pre-existing health concerns that could trigger an insurance rating with traditional underwriting.
Downdalls of group life insurance
So what about the downsides? There are a few, including:
Limited coverage. Generally, group benefit amounts won’t be enough to cover your household’s needs, especially if you have dependents.
Lack of control. You don’t actually own the policy. Your plan sponsor or the insurance company can change the terms at any time or discontinue it without your input. And, group plans aren’t exactly tailored to your specific needs.
Limited portability. If you ever change jobs, there’s no guarantee you can take your policy with you, and it may be quite costly if you are able to transfer ownership to yourself. Next, your new employer may not offer the same coverage as your current group plan. Once you retire, you may also lose your coverage or be forced to pay an elevated price to convert the policy to one you own outright. Lastly, if you end up having to purchase new life insurance coverage later in life because of having previous coverage through an employer, your premium price will be higher, simply due to the fact you’ve gotten older.
Taxation. Depending on how your employer structures the premiums, your beneficiary may owe taxes on the payout.
Why you should get an individual life policy
By all means, if you have group life insurance offered to you, take it.
But, even if you have group coverage, there are many good reasons to have an individual life insurance policy as well.
If you know that a group insurance plan isn’t going to cover your family’s financial needs, why not ensure you have complete coverage with a policy that’s flexible enough to adapt to the various stages of your life and career?
Once your policy is approved, you’ll have peace of mind knowing a guaranteed, tax-free cash benefit will go to your beneficiaries should anything happen to you during the coverage period. Unlike a one-size-fits-all group policy, individually-owned coverage can be customized to your unique needs.
You can also add additional illness or disability benefits to individual policies to create a more holistic coverage plan.
As of 2023, 64% of total life insurance policies currently in force are individually owned, according to PolicyMe. For most Canadians, a term life insurance policy — whether for 10, 20, 30 years or beyond — is the best and most affordable option to see them through their working years until retirement.
So what’s holding you back?
According to the PolicyMe study, 80% of Canadians say life insurance rates are too expensive, with 37% say a perceived lack of affordability has prevented them from purchasing it.
However, an online insurance brokerage like PolicyMe or PolicyAdvisor can help alleviate some of the headwinds when trying to get coverage by providing fully comprehensive online platforms that allow you to find the policy that suits your specific needs.
Sources
1. LIMRA: Nearly one third of Canadian adults report living with a life insurance coverage gap (Jul. 11, 2024)
2. PolicyMe: Key Canadian life insurance statistics, by Cristina DaPonte (Apr. 28, 2023)
This article Think that a group life insurance plan through your job is all the coverage you need? Think again originally appeared on Money.ca
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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