I have life insurance from my work, Do i need private life insurance?
Or
Work has got me covered, I don’t need private insurance.
Having life insurance in any form is great. Before we answer the question, we must understand difference between Group Life Insurance and Individual Life Insurance.
First lets start with the basic.
Group Life Insurance:
Group life insurance is coverage that is offered by your work (sponsor) to a group of people (employee) who have some form of common association with that sponsor. Usually premiums are paid by sponsor.
Individual Life Insurance:
Unlike Group Life, Individual life insurance is a policy that is paid by one person and covers a single person.
Now, lets look at the key differences.
| Group Life Plan | Individual Plan | |
| Coverage: |
|
|
| Ownership: | Your plan sponsor (work) owns the policy, you have no control. | You own the policy and have 100% full control. |
| Portability: | Your policy ends when you quit your job, or the sponsor no longer provides the plan. Hence, no longer insured. | Your policy is yours forever (unless you cancel or die). Leaving your employer doesn’t affect your coverage. |
| Cost: | Cost is usually low and provided by your employer (but not for all). In some plans, employees are required to pay a premium. Example: The premium could start from $9 up to $30. | You are responsible to pay the premium, however, you have the option to customize. If you need maximum coverage, the premiums will be a little high, if you need less coverage so is the cost. Example: For a 25 years old female, non-smoker, the premium starts as low as from $170 a year, i.e $14.16 a month for a 500K coverage. |
| Convertible: | Generally, you can convert the individual term option to permanent coverage. Can be converted to individual coverage if they retire, leave their job, or plan is terminated, however, the premiums upon conversion are not guaranteed, and may expensive due to age, health status, etc. | Generally, you can convert the individual term option to permanent coverage. |
Now, look at this example.
Only Group Life insurance
Henry is a teacher with a wife and a son and makes $70,000 annually. He only has life insurance through work and covers 2 times of his annual salary.
His wife, Claire works as an administrative assistant and makes $45, 000 annually. Henry and Claire purchased a home three years ago, their son is 2 years old. Their mortgage loan is $400,000, have a car loan of $32,000 and the potential cost of sending children to university will total at least $60,000 in the next 18-20 years.
Unfortunately, Henry died in a deadly car collision on the way to work one morning, that $140,000 can perhaps cover his final expenses, car loan, and child’s university tuition down the road. (Assuming $30,000 for funeral, taxes etc, $60,000 for education, leaving $18,000)
Claire will now have to figure out how to raise the child, take care of daily living expenses, mortgage payments, child, and her own support with the income from her job.
Vs having Individual life insurance.
If, Henry has individual life insurance with the death benefit of $500,000. The total amount his family would have received is $640,000 (Group Life + Individual life). Claire would have paid her mortgage in full, have enough for their child’s education, paid off her car loan, spend a generous amount on her husband’s funeral cost, and still have over $125,000 cash. With her regular income and savings, she will be more comfortable supporting herself and the child.
The difference and the scenario presented above will help you understand the benefit of having Individual Life insurance without having significant impact in your budget.