3 Myths About Life Insurance Through Work That Will Make You Rethink Your Coverage.

Many companies offer life insurance through work. Most people are content with that coverage. But we are here to break down the myths that you believe about your work provided life insurance, to make sure you don’t miss out on the coverage you need.

Myth #1

The life insurance provided through work is enough.

TRUTH: It’s not. You need 7-10X your salary to be comfortably covered by life insurance

Companies often provide only 1-3X an employee’s salary as an included benefit. The amount you really need is the total amount your family needs to replace your income for years to come. The general advice is to carry 7-10x your annual income in coverage, but each individual’s exact coverage and family needs may vary. The payout will be able to replace your income and help pay for expenses or services you used to provide, like living expenses, child care, college expenses, or mortgage payments.

The biggest reason you should buy a life insurance policy is to help your family recover financially in the event of your death. The reality is, even if you have no debt, your mortgage is paid off and your spouse also works, 1-3X your salary will not be enough to help your family recover.

*Based on industry standard 7-10X income coverage and average company provided life insurance coverage

Your policy should be set to expire no earlier than when your family’s need for a payout ends. Ideally your children will be on their own, you’ll have paid off your house, and you’ll have plenty of savings and investments to serve as a financial safety net for your spouse.

A free policy through work only lasts as long as your employment there.

Myth #2

The supplemental coverage you can buy through work is priced fairly and it’s convenient.

TRUTH: It’s not. Everyone is priced the same based on age and gender regardless of health status.

Convenience comes at a cost. Yes you can buy additional coverage to make up the gap from your employer. For many people, this won’t be the cheapest option.

If you have 3 DUIs, you should pay more for car insurance than a person who has no tickets in the last 5 years. And auto insurance is priced accordingly. The same can’t be said for group life insurance. In a group life insurance policy, all lifestyles are priced equally.

Group life insurance policies through work are required to be community priced or rated. Because of this, everyone is generally priced equally if they are the same gender and age. This means that if you live a healthy lifestyle you are subsidizing those who don’t when you buy a group life insurance policy. In addition, group policies have to charge a higher rate to account for the fact that very unhealthy individuals who can’t obtain an individual policy will end up purchasing a group policy. So if you are in decent health, you can end up paying 2X as much for a group policy as you would an individual policy.

In contrast, individual life insurance policies are individually rated and priced to your specific situation.

* Potential savings of 59% based on the total cost, over 20 years, of a $500,000 group life insurance plan for a 40-year-old male non-smoker in CA, compared to the same person obtaining a $500,000 Ameritas V4 preferred plus policy through Health IQ.

Myth #3

My policy through work is mine, and it’s easy to replace if I leave?

TRUTH: It’s not. It’s not portable and can be changed or cancelled at any time.

When you leave your job, for any reason, your life insurance policy that you have been paying for doesn’t come with you. At face value this may not seem like such a big issue, you can just go out and buy a new policy, right?

While it’s true that you can go out and buy a new policy, rates changes as you age. So it may be best to buy an individual life insurance policy now, because if you wait until you switch jobs, your rate could be much higher.

Even when you stay with your job, the rate you pay for the additional coverage you buy through group can change each year or (more often every 5 years). Worried your health might decline in the future? Once you obtain an individual policy the rates can’t change for the period of the term (usually 10, 20, or 30 years). So you can benefit in savings for your good health now and not worry about future rate changes.

On top of the lack of portability of the policy, the insurance company, employer, and association can all cancel coverage at any time. The rates and coverage are sometimes guaranteed only 30 days. A group policy is a certificate, so you have no ownership or control. An individual policy is a guaranteed contract you own, a major difference in your favor.

Does a group policy ever make sense?

There are really two times that a group policy will make sense.

When it’s free: You aren’t paying any additional costs and the coverage is provided to you by your employer at no fee. However, this coverage limit will typically be considerably smaller than the amount of coverage you should actually have. Many companies only provide 1-3x your salary and you typically need 7-10x.

When you have major health considerations: If you have major health considerations, a group life insurance policy through work may make sense for you. However, even in this case it may make sense to look at an individual policy as an agent can help you find the right carrier and rates for your situation.

The simple truth is, in many cases, a group life policy will cost you more money for less coverage.

Solution: Buy your own life insurance policy

The benefits of an individual life insurance policy are enormous. You can save considerable money by looking at an individual life insurance product rather than adding supplemental life insurance through work.

An individual life insurance policy gives you more coverage, greater flexibility and greater control over your life insurance.

Things to keep in mind when shopping for a life insurance policy:

  • Make sure it requires a medical exam, especially if you are on the healthier side.
  • Make sure you are working with an agent that works with a number of different carriers in order to shop for the best rate.
  • Look for a term life insurance policy rather than a whole life policy.
  • Look for a company that will reward your good health if you live a healthy lifestyle.

The best time to buy life insurance was yesterday. The second best time is today. A term life insurance policy is an inexpensive way to give you and your family members peace of mind, knowing that they will be protected if something happens to you. You will no longer have to worry about their financial future and can rest easy knowing they will be able to continue their current lifestyle.

The Health IQ Difference

Health IQ has become the country’s fastest growing life insurance company by ensuring you get the best rate at all times. We do this through rewarding your healthy lifestyle, the number of carriers we work with, the types of policies we encourage you to buy, and by constantly keeping track of improvements in your health.

You make health conscious decisions in your life. Shouldn’t all of those be taken into account during the underwriting process? We believe so.

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