Think You’re Covered With Life Insurance Through Work?
Have you ever wondered how group life insurance works, or if you have good coverage on your employer’s group life plan?
Here’s an excerpt from my book, The Life Insurance Marathon. I dedicated an entire chapter to group life insurance.
Group Think: The Trap Door
The Story of Group Life Insurance
IN LIFE, WE ARE always navigating trap doors — things that appear to be solid and reliable, but in the end they don’t hold up, resulting in an unfortunate consequence. Group life insurance is one of these trap doors, providing a false sense of security.
With group life insurance, you are a certificate holder and your employer is the policy owner. You have no rights to negotiate or change the policy, and you are subject to the policy limits and restrictions. These limits and restrictions are unique, and they are rarely explained to you.
It is very typical for an employee to simply sign a couple of forms, and bingo, you’re on the group life plan. Most employees never meet the selling agent, and never have an opportunity to ask questions to a licensed life insurance professional associated with the employer’s group policy.
How It Works
When an employer offers a group life plan, a small amount of protection is provided at no cost to the employee. In addition, there are no health questions or exams. In other words, your acceptance is guaranteed for this small amount of free coverage. Guaranteed acceptance means that the coverage is expensive to the employer, because the life insurance company does not have the opportunity to ask questions about the health of any of the individual employees. Essentially, the life insurance company is going into the contract blind, so they must charge higher prices for the additional risk.
Some group life plans offer additional coverage options to employees. The additional coverage requires some underwriting through an application process, and in some cases a paramedical exam. Oftentimes the employee is responsible to pay the premium related to this additional coverage. Most group life policies increase the premium every five years, and even the additional coverage options tend to outpace the premium expense of individual policies, especially as we enter our 40s and 50s.
Employers can pull the group life policy rug out from under their employees and retirees with little or no consequence to the company. After Sears declared bankruptcy in 2018, it did just that — ending the group life insurance coverage for 90,000 retirees in March 2019. Additionally, group life for employees only pays a death benefit if you die while employed with the employer who provides the policy. But very few people die while employed. Generally speaking, people die slowly, over months or years. So, if you’re in an accident and you die immediately, or soon after, your group life will pay out. But if you’re diagnosed with cancer and you survive for months or years, it’s very likely you will not have the group life coverage when you die. Most terminally ill patients end their relationship with their employer because they don’t have the energy or stamina to work.
Once you begin to understand life insurance, you can take steps to properly protect your loved ones. It’s much easier than most people think!
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