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Employer Sponsored Life Insurance - Take a 2nd Look


by David Frucella


Consider my mistake...with re-enrollment right around the corner, this idea can save you some money, perhaps hundreds.

In 1974, I went to work for a major insurance company. Probably like you, they offered the usual package of benefits - health, dental and life insurance. They gave me one times my salary for free and I could buy up to four times additional life insurance for an extra cost. Like many of you, I signed my name and was insured and never noticed the payroll deduction thereafter. Though, it was odd to me that there were no health questions to answer - but never question a good deal, or so I thought...

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I didn't like what I discovered.

When I turned 35, at re-enrollment, I learned about an insurance term called "pooling." I mentioned above that I was not asked any health questions to get my employer life insurance coverage. What my company was doing (and yours is today) was "pooling" me with the rest of the people I worked with. This means "average" rating me with everyone else and offering a blended rate to everyone in his or her corresponding age bracket. The pricing age brackets are usually 30-34, 35-39, 40-44, 45-49, 50-54, 55-59, 60-64 and 65-69. It's called "banding." In other words, every 5 years my rate band changed and my cost got even more expensive. Since I was young, I didn't notice that fact until I hit 35.

Your health condition is the same as everyone in your company.

From the insurance company's perspective, the mortlity tables (which are amazingly accurate) say some employees are sick, most are healthy. It uses an average rating to come up with a premium everyone pays in a particular band. It assumes average health for everyone even though some are sick, some are very sick and others are in good to excellent health. Some will live, some will die. The company doesn't care because the healthy employees are pulling up the averages. Therefore, the premium is based on the assumed average health (risk) of all the employees, via these mortality tables . If you are in poor health, itís a good deal; if you are in good health, itís a bad deal. In any pooling situation, the people in good health are subsidizing the life insurance premiums of those in poor health. In other words being in good health, I got to pay extra to offset the sick ones in the group. It didn't take long to figure out that I could drop out of the group and buy an individual policy (which is underwritten on my health, not others) with a long-term rate guarantee for less money than I was spending.

What You're Paying Now.

If you have group life insurance through your place of employment, at no cost to you, be thankful. If, however, you currently have a voluntary plan, check the details of what you are getting -- and what you're paying for it. You may be less than pleasantly surprised. With re-enrollment coming up, this may be an ideal time for you to shop the lower rates and get the most for your money. This is especially true if you are moving into a new band - ages 35, 40, 45, 50, 55, 60 or 65

We've had many clients realize this and were able to drop out of the group life plan, purchase an individual policy with a long rate guarantee and actually save hundreds of dollars. Now the key to this is, you must be in average to good health to make this work, even if you take medications to control a condition (blood pressure, cholesterol etc.). If you're really sick, you may have a better value in the "pool" as others are paying extra for your coverage. If your health is poor, call and we can advise you as to available options.

I suggest you do the following...

Get out your last pay statement. Check what you are paying now. If you get paid twice a month, multiply by 26 to get an annual cost. Contact the human relations area or the person who handles benefits where you work. Here's an example. I'll assume you are 43 years old. Ask them, "when do I move into my next band." In this example, they will say the next change is age 45 then 50, then 55 and so on. Then ask, "based on today's rates, what would my rate be if I were 45, 50, 55, 60 and 65 today?" Normally, the answers will be in "monthly cost per thousand," which is Greek to some.

Here's how to calculate your annual cost.

Take the cost "per thousand" and multiply it by how many "thousands" of life insurance you have and multiply that result by 12. In the example for our 43 year old who is paying for $200,000 of coverage, let's say the monthly cost per thousand is 15 cents. Take .15 X 200 X 12 or $360 annually. Do the same for the rest of the "costs per thousand" for the older bands. You can easily compare (on our quote screen above) what a long term fully guaranteed individual contract will cost. The numbers don't work in some cases, but you may be surprised that you mayt be able to get a long-term guaranteed-rate policy for less or close to what you currently pay for your non-guaranteed (and increasing) group rate.

Who Controls Your Insurance?

It's also important to keep in mind that group insurance isn't portable. If your employment ends, your group life insurance will too. People quit jobs or get laid off. Your next job may not offer benefits. If they do, the new company may ask health questions. Your health may have changed in the meantime. For those reasons, an individually owned policy isn't dependent on your next employer and is portable. In today's transient business climate, who controls your life insurance coverage is an important consideration.

What does it cost you?

If you find, you can save money, the cost to you is some time and a free physical. You will get lab results that you can have for your records.

What if I don't like the insurance company offer?

Say no thanks, walk away with no further obligation or cost to you and keep what you have.

If you have the opportunity to participate in employer-sponsored life insurance where you pay the premium, take a long, hard look at the cost over time. Compare that to opting out and purchasing your own term life insurance policy not tied to your employment.

Better yet, give us a call. AmericaQuote and we can help you run the numbers.

Questions? Comments? Suggestions? 1-800-542-5530

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