The Downside to Purchasing Life Insurance Through Your Employer

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If you’ve started a new job recently, or it’s open enrollment season at the office, you’re probably facing some tough decisions regarding your family’s insurance. Many organizations now include a life insurance policy as part of their employment package. The cost is minimal, or often free, making it appear they’re offering you a really great benefit.

If your employer provides a life insurance policy to you for free, take it. They’ve made the process so easy – all you have to do is sign up. No medical exam and no long, drawn out medical forms to fill out. You often even have the option of having your group life insurance premium drawn straight from your paycheck, so you never really even miss the money.

Studies indicate this is the most popular life insurance investment amongst U.S. citizens, with group insurance plans providing $8.2 trillion of protection in 2014 alone. With more than 41% of life insurance policies purchased through a group life plan, it’s obvious that many consumers have weighed their options and feel that this is the best solution. While we agree you should take the policy, it’s important that you understand the pros and cons going into it, so your family has the financial stability necessary should the unthinkable happen. Let’s begin with the pros.

Pros of Buying Life Insurance Through Your Employer

There are 3 advantages to purchasing life insurance through your employer: price, acceptance, and convenience. To better understand the first, let’s first examine the concept behind insurance.

Insurance is defined as a pooling of risks. Individuals who aren’t in a financial position to take on a specific risk, transfer said risk to the insurance company. In this case, we’re referring to life insurance and the potential death benefit payout should a catastrophe occur.

For group life insurance policies, the pool of risk focuses on the insured workforce. The life insurance company evaluates the overall health of each individual and determines an average rate based on their findings. So, if you’re a non-smoker who is in great health, you’ll still be paying the same premium as your colleague who is the same age, with multiple health issues. If you’re offered a policy through your employer and you have serious health concerns, you may qualify for a much better rate through your group plan than you would on an individual policy. This is something that should be examined on a case-by-case basis, as everyone’s situation is unique.

Speaking of health issues, acceptance is the second pro to purchasing a group life insurance policy. You will likely be required to fill out a detailed questionnaire, but no medical exam is required for group plans. So, not only will your premium be lower, but eligibility is a breeze, making this the easiest and most affordable option for those with any kind of medical concerns.

Even for the simplest of insurance policies, investing in life insurance is a process. It takes time to shop around, determine the coverage you need, and understand the different options available to you. Purchasing a group policy removes all the guesswork. You may have some options regarding coverage amount but, other than that, the decisions have already been made for you. If you’re looking for a quick and convenient policy, purchasing one through your employer is probably your best option. Just be sure and understand the limitations so your family isn’t left without the protection they need.

Cons of Buying Life Insurance Through Your Employer

While the convenience of buying life insurance from your employer may seem tempting, there are some additional factors you should consider before making your final decision. Let’s examine the drawbacks to purchasing a group life insurance policy.

A recent study conducted by the U.S. Bureau of Labor Statistics indicates that the average number of years workers stay with their current employer is 4.2 years; and this number is expected to decrease in the coming years. It’s important to take this into consideration when purchasing a group policy, as your policy will cancel once you’ve moved on to the next stage in your career. If you intend for this to be your primary source of life insurance support, you run the risk of being uninsured if you retire, are let go, or change companies.

As mentioned earlier, if you have any serious medical concerns, a group life insurance policy might be your cheapest and safest option. If you’re a nonsmoker and are in good health, however, this is generally not the case. Before accepting the group life plan, speak with your insurance agent to review your options – they can likely help you save a considerable amount of money purchasing a policy outside the workplace.

Most group life insurance policies renew every 1 to 5 years. At the time of expiration, the insurance company will reexamine the risk pool and adjust rates accordingly. If you’re in the market for a more consistent policy premium, you’ll want to consider purchasing your own individual term policy, where the premiums are level and the policy term is longer.

It is typically recommended that consumers purchase policy coverage equal to 5 to 10 times their current annual income. Most group insurance plans limit employee coverage amounts to between 2 and 3 times their annual salary, leaving individuals underinsured.

While opting for group coverage sounds like a great benefit on the surface (and it is for many), it’s important for you to consider both the pros and cons before making your final decision. Speak with a qualified insurance agent to help you weigh your options. Make sure you understand the policy’s limitations and what the financial impact will be on your family upon your death. If you’re going to spend the time and money protecting your family, you might as well make sure your hard-earned dollars go as far as possible.

Hidden Value: 8 Term Life Insurance Riders You Should Consider

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So, you’ve done your homework regarding how much life insurance you need and what type of policy best fits into your current financial situation. Congratulations! You’ve tackled the most challenging part of the decision-making process. There are, however, a few more things you need to decide on – does the policy you’re leaning towards offer life insurance policy riders and, if so, which ones fit into your unique position?

If you’ve been completing online quotes or discussing your options with an agent, you’ve probably heard the term “rider” before. Before we get started discussing your options, let’s begin with a brief introduction into life insurance riders and their benefits.

What is an Insurance Rider?

A rider is an add-on provision to your basic life insurance policy which provides additional benefits for an additional premium. An amendment to the original contract, if you will. It allows you to customize your life insurance policy in order to prepare for specific, unforeseen circumstances, as defined within the rider.

The options available to you will vary by insurance company and policy, as will the parameters regarding how each one works. The add-on premium price will also fluctuate, depending upon factors such as your age, health, and policy type. While we cannot list every available rider, we’ve compiled a list of those we feel are the most useful. When discussing life insurance options with your agent, be sure to include these in your discussion.

1) Disability Income Rider

This rider’s benefits are exactly as they sound – if you were to become disabled and unable to work, the policy would pay you a monthly stipend, as defined by the parameters of your policy. The pay-out specifics vary from policy to policy: some will only pay out if you’re disabled from an accident, while others pay out for either an accident or sickness. Some policies provide income for the length of the disability, while others limit your benefits to a defined length of time.

While many consumers choose to purchase disability insurance through their employer, the policy ends, once employment has terminated. By purchasing the disability income rider, you have peace of mind of knowing exactly when the offer expires, as it runs congruently with your life insurance policy.

2) Waiver of Premium Rider

Even if you choose not to purchase the disability income rider, you might want to consider the waiver of premium rider, which ensures that, should you become disabled, the parameters of your policy will remain the same, even if you cannot pay your premium.

If this rider is important to you, be sure to compare the fine print on each policy you’re considering, as every life insurance company defines disability a little differently. Your insurance agent can help you read between the lines to ensure you invest in a policy that meets your needs.

3) Term Conversion Rider

This rider comes standard on most life insurance policies. It allows you to convert your term policy into a permanent life policy without submitting to another medical exam. If the policy you’re considering does not include this rider automatically, inquire further with your agent as to why and how much it costs to add it on.

Most of us would still find value in a life policy for years after the term limit has expired. This rider will make the entire process easier and more affordable.

4) Acceleration of Death Benefit Rider

Imagine you’ve been diagnosed with cancer and the doctors have given you 6 months to live. A grim thought, but a daily reality for many. During that time, you’ll likely incur thousands of dollars in medical expenses. With this life insurance rider, you can start receiving your death benefit pay-out now, to assist with those medical bills.

Some life insurance policies come with this rider built-in, but if yours doesn’t, we suggest adding it to your policy. A terminal illness can become expensive quickly; this is a great way to ensure your family isn’t stifled with those bills long after your passing.

5) Long-term Care Rider

A long-term care rider is often compared to a long-term care insurance policy. It takes money out of your death benefit to pay for your long-term care expenses, such as a nursing home or a private nurse.

Some insurance companies lump this coverage in with the accelerated death benefit rider, so you will want to inquire further, when discussing these benefits with your agent, to ensure you receive the coverage you need.

6) Critical Illness Rider

With this rider, your insurer will pay you a lump sum should you be diagnosed with an illness or condition, such as cancer, stroke, kidney failure, or heart attack. The list varies from policy to policy, but the benefit remains the same – the rider provides your family with the money needed during the course of your illness’ treatment.

7) Guaranteed Insurability

Let’s face it; life can change in an instant. Because we never know how our health could change, this rider is a great addition to any life insurance policy. It allows for you to purchase additional coverage at a later date, without submitting to another medical exam or evidence about your insurability. The option to purchase more coverage typically comes up at different intervals, such as every four years, or at certain ages. When determining the additional cost, the insurance company considers your age and not your health.

8) Child Protection Rider

While the death of a child is something none of us ever want to think about, it is a possibility that should be considered. Most of the time, losing a child does not result in a loss of income, but there are other factors to think about. How will you pay for final expenses? How will you be able to handle the emotional tragedy? Will you be able to go back to work right away or will you need to take time off? If the child’s death is due to illness, how will you pay for the medical bills that have accumulated?

This term life insurance rider offers coverage for those final expenses, should the unthinkable happen. You can purchase coverage in increments, typically of $1,000, and the premiums are typically reasonable in price.

Every family’s situation is unique, so there is no one-size-fits-all answer as to which riders should be included in your term policy. When shopping for the policy that best fits your short and long-term needs, it’s best to speak with an experienced and knowledgable life insurance agent. They can help you make an informed decision and identify the right policy package, at the right price. Shopping for insurance is never fun, but your agent should help take some of the guesswork out of the process.

Why Millennials Aren’t Buying Life Insurance (But Should)

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If you’re over the age of 34, you most likely relate to all the same thoughts the millennial generation is currently having – “I’m young, I’ve got plenty of time before I go.” Or “What do I need life insurance for? I don’t have a spouse and child to protect in the event of my death.”

These feelings are understandable. Everyone’s been young and carefree; the last thing we want to think about is our impending death. What a morbid thing to consider, right? And you’re not alone. In fact, according to a recent study conducted by LIMRA, just 34% of millennials own life insurance, making them the most underinsured generation alive today.

If you don’t have any dependents and have enough money saved to cover your funeral expenses, you might not need life insurance right now. But the truth is, despite your young age and lack of assets, this is the most optimal time to buy. It might not be quite as easy as ordering a ride from Lyft, but securing a policy is almost as easy and is surprisingly affordable.

Living the Single Life

It’s natural to assume that if you’re single, there’s no real need to invest in a life insurance policy. But recent numbers have revealed that “1 out of 5 adults between the ages 25 and 34 live in multigenerational households” with the “median share of household income contributed by those individuals at almost 25%” Consider the financial impact losing 1/4 of the household income could have on those left behind. Investing in a life insurance policy could help secure your family’s future as they’re picking up the pieces of such a devastating loss.

Your family could use the death benefits to cover:

  • Credit debt
  • Burial expenses
  • Help support siblings with educational expenses
  • Provide parents with the resources to retire

While your federally funded student loan debts are forgiven in the event of your death, many private loans still hold families financially responsible. If you carry a private loan, it’s best to check with your lender regarding the specifics of your student loan.

Married With No Children

Marriage is one of those life events that really changes the course of your existence. Love and hope is in the air as two individuals become one, ready to take on the world together. Once the wedding excitement calms down and life goes back to normal, it’s important for couples to ask themselves some very difficult questions – If I were to pass away, would my spouse suffer financial hardship? What debt would they be faced with? Would they be able to support themselves on just one income?

This life event signifies a shift in your family dynamic. This is the time to reevaluate your finances, health insurance, and life insurance to ensure your new family unit is covered in the event of any disaster.

Just Starting to Build Assets

Just on the heals of a new marriage, many couples celebrate their union by purchasing a new home. If your mortgage company requires you to purchase Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI), don’t be fooled – this does not pay off the mortgage if the homeowner dies. Unless you know your spouse could fully support the household bills, it’s a great idea to look into a term life insurance policy.

A term policy is an affordable solution for many young families. It ensures that loved ones are financially secure as they work to pick up the pieces after such a catastrophic event. And at less than a cup of coffee a day, you don’t have to break the bank now just to secure your future later.

A Baby on the Way

The only thing more exciting than starting a new marriage, is the birth or adoption of your first child. You put all your hopes and dreams into this tiny little bundle of joy; even sleepless nights can’t knock you down off your high.

Unfortunately, adulthood often forces us to face the bad right along with the good, and the arrival of a baby is no different. In fact, this is another life event that should spark couples to reevaluate their insurance and financial situation to ensure security in the event of one parent’s untimely death. Plan for the worst, and hope for the best.

The Bottom Line

The young and carefree attitude is something we all strive for. There’s something to be said for living life on your terms and living life to the fullest. But a little bit of preparation goes a long way, particularly when it comes to preparing for your financial future. If you’re a millennial, you’re about to embark on the most meaningful and life-changing part of your life.

If life insurance is still not a concern for you, consider these facts before making your final decision:

Life insurance is cheapest when you’re young. The older you get, the more health issues tend to pop up. The earlier in life you purchase a term life insurance policy, the cheaper premium you will pay. A 20-year, $500,000 term life policy would only cost about $16 at age 35. It will double in price at around age 45 and will be close to $65 by age 55, assuming you don’t have any health complications along the way.

Getting a policy takes time. Technology has offered us the advantage of having a wealth of information at our fingertips. While you can obtain a life insurance quote online, the buying process is a little more lengthy. You’ll need to fill out an application, answer questions regarding your health, and will have to undergo a medical examination. While none of this is difficult, you do want to remember that your insurance policy won’t take effect until the process is complete, which could be anywhere from a couple weeks, to a couple months.

Take the time to work with an agent once you’ve made your decision to buy. Making the decision to invest in life insurance is just the first step. When you’re ready to make this investment, you want it done right. This means understanding your coverage and term options and ensuring your policy aligns with your overall goals. Learn from the mistakes of others and consult with a licensed life insurance agent to ensure your policy is designed with both short and long-term goals in mind.

As you enter adulthood and start trying to set up for your financial future, there are a million things to consider. Be sure to partner with an agent that is knowledgeable and can guide you through the process. Don’t be afraid to ask questions; it is our job to ensure you understand all of your options as you decide on a policy that will be with you for many years to come.

4 Reasons to Choose Term Over Whole Life Insurance

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Life insurance is a very personal investment – what could be more personal than planning for your own death? Couple that with the fact that there are a number of different life insurance options to choose from and you have some very important decisions in front of you.

The type of insurance you decide to invest in is dependent upon a number of different factors – what you’re hoping to accomplish with your investment, your age and health, and the size of your budget, to name a few. Before making a decision, it’s important you understand what your choices are and where those options fit into your unique situation.

Let’s start with a brief overview of what those options are; then we can go into more detail as to why consumers choose one over the other.

The Differences Between Permanent and Term Insurance

Term life insurance, also known as “pure life insurance,” is temporary coverage designed to protect your loved ones should you die prematurely. It is temporary coverage that offers your beneficiaries a safety net for a period of time ranging from one year to thirty years. The policy holds no financial value beyond its death benefit and the policy expires once its defined term is reached.

Permanent life insurance, such as whole life, offers lifelong coverage. While the specifics vary from policy to policy, whole life policies offer policyholders an investment opportunity known as the policy’s cash value. The cash value builds up slowly over time and is tax-deferred, meaning you don’t pay taxes on its earnings while they accumulate. Most policies offer you the opportunity to borrow money against the earnings or surrender the policy for its cash value. You are required to pay back that loan, plus interest – failure to do so will result in a reduction of death benefit. Surrender of the policy means your beneficiaries are no longer protected in the event of your death.

There are a number of reasons why consumers choose term life insurance policies over whole life. While we always recommend that you consult with an experienced insurance agent before making any decisions, we wanted to share the top 4 reasons why many come to this decision.

1) Term Life Insurance is More Affordable

The annual premium for a term life insurance policy is much lower than that of a whole life policy. The term is limited and no cash value (or policy loans) accumulates, lowering the risk for the insurance company.

A healthy, non-smoking female, 30 years of age can purchase a 20-year, $500,000 term life policy for as little as $210 per year. The same policy for a healthy 30-year-old male would run about $239 a year.

A similar whole life policy could cost almost $5,500 a year for men and $4,570 for women, according to our most recent premium estimates. Obviously, the whole life policy has its own set of benefits, but if cost is a factor for you, term life insurance is the most affordable route.

2) Quote Comparisons Are Readily Available Online

The underwriting and simplicity of a term policy make it easy for quotes to be figured and compared from the comfort of your own home. This is a great benefit for consumers who are trying to determine where a new policy will fit into their budget, but it is important to consult with an insurance professional when it’s time to take out a policy.

There are a number of inexpensive riders you’ll want to discuss with your agent before making your final decision. While you might feel these riders aren’t necessary, we’ve seen many instances where customers had to cash in on these extras and were grateful they made the decision to pay a few dollars extra each year.

3) You Can Match the Policy to Your Needs

Term life policies are not only simple to understand and quote, it’s also easy to match the coverage to your needs. Policies typically come in $50,000 increments and you can select the coverage time, ranging anywhere from 1 to 30 years. Insurers offer level-premium term life policies, which means your premium remains the same throughout the life of the policy.

4) Most Term Policies Can be Converted to Permanent if You Change Your Mind

We all know how much life can change in a year; imagine how much it changes over a 30 year period of time. Committing to a term life policy now, however, doesn’t mean you’re stuck with it for its full length. If your financial situation (and needs) change, most term policies have the option to convert to a permanent policy. You’ll want to discuss this option with your insurance agent during the initial buying process. They can help ensure you invest in a policy that offers this option, as well as make you aware of what your permanent policy options will be when you do decide to convert. Just be sure you keep track of the conversion deadline, as some offers end before the policy expiration date.

While both permanent and term life insurance policies fulfill valuable needs for consumers, term life is the overwhelming choice amongst insureds who are looking for temporary financial protection against untimely death. If you’re considering life insurance, it’s important to discuss your options with a licensed insurance professional. They can offer you the tools needed to determine which policy is right for you, how much coverage is necessary, and what length of time would best protect both you and your family.

7 Term Life Insurance Mistakes to Avoid

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We all know we are going to pass on someday, but none of us really like to think about or plan for our death while we’re enjoying all that the here and now has to offer. As a result, life insurance is one of the most undervalued investments consumers make today. Families often make the mistake of procrastinating on their life insurance decisions, viewing it as more of a “fringe” benefit than a necessity. In fact, according to a 2015 Bankrate report, 37% of parents with young children do not have life insurance. Among those who have taken out a policy, more than half have less than $100,000 in coverage.

Your life insurance policy, however, is one of the most important investments you can possibly make, ensuring your family is taken care of after your unexpected death. Given its importance in easing a very difficult time in your family’s lives, it’s critical that you avoid these common mistakes, when considering this valuable investment.

Undervaluing Yourself

If you’re going to spend the time and money investing in a life insurance policy, you want to do it right. Many consumers are attracted to policies in whole numbers, such as $50,000 or $100,000. But the reality is, for even a small family, this is not enough coverage.

Consider your mortgage, college education for the children, and burial expenses. Those are just a few of the bills your family will be burdened with, upon your death. For many of us, $100,000 would not even pay off the mortgage balance.

The purpose of the policy is to provide long-term relief for those you’ve left behind. That $10,000 policy provided through your employer will barely cover funeral expenses, much less provide any sort of a cushion for your loved ones. A great rule of thumb is to purchase 10 to 12 times your income in life insurance coverage. That might sound like a lot on paper, but consider the goal of the policy and how far the dollar really goes. Term policies are incredibly cheap – less than the cost of your daily coffee. Wouldn’t you rather spend a few extra dollars today to ensure your family’s stability in the future?

Waiting Too Long to Purchase

Planning for your death is one of life’s unpleasantries, so it’s only natural that you would want to put it off until a later date. Waiting, however, can come with a hefty price tag.

The earlier in life that you purchase your life insurance policy, the lower your rates will be. By waiting, you’re guaranteed to pay a higher premium and run the risk of facing health issues that could make you uninsurable or, at the very least, will increase your annual premium.

Roughly 2/3 of U.S. consumers put off buying an insurance policy due to perceived cost. A few dollars saved today, however, could cost you hundreds of dollars later.

Buying Too Short of a Term

The purpose of investing in a term life insurance policy now is to prepare for the unknown. While you will (hopefully) still be around in 10 years, a lot of things can change in that time that could result in an increase in premium or uninsurability.

So, how should you determine the length of the term you will need to purchase? A good rule of thumb is to purchase based on when your children will be living on their own and/or when your financial commitments, such as your mortgage will be fulfilled. If the mortgage is paid off in 17 years and your child will be out of college in 15 years, a 20-year policy may suffice.

Not even married yet, much less have children? This is the optimal time to buy a 30-year term policy. The reality is, everyone’s financial situation is unique and there’s no way to predict the future – it’s always better to err on the side of caution.

Not Purchasing the Correct Riders

When it comes to buying insurance of any kind, it’s human nature to shy away from adding all the “bells and whistles,” under the assumption we’ll will never really need them. But most term life policies come with the option to add riders that could prove beneficial in the future, without a significant increase in premium. Each individual’s situation is unique, so there is no umbrella rule when it comes to the addition of riders. Consult with your insurance agent to determine which riders could benefit you the most.

Choosing a Policy Based Solely on Price

When given the choice, we as consumers have been trained to immediately lean towards the cheapest alternative. When it comes to life insurance, however, the cheapest option isn’t always the right way to go.

Rather than choosing a policy based solely on cost, start by considering your options and comparing those with the needs of the family members you’re looking to protect. Consult with your insurance agent and have them explain the various policies, features, riders, and financial security of the insurance company. Once you’ve made an ordered list of who best meets your needs, you can then factor price back into the equation.

Undervaluing a Non-Working Spouse

When considering a term life insurance policy, many do so in order to protect against the unexpected death of the “breadwinner.” Obviously, this is a wise choice, but what about the non-working spouse? Or the spouse that brings home less than their significant other?

While you might be tempted to forego a policy for them, this is not a wise choice. Consider all the things your spouse does day in and day out. If you are suddenly left as a single parent with a full-time job, how much time will you really have to devote to household activities? Who will mow the lawn, pick the children up from school, or clean the house? Proper life insurance coverage for homemakers should always be an integral part of your financial plan.

Life insurance is a major component to building a healthy financial strategy. All of us would love to think that we’ll be around until age 95, but the reality is, life has been known to throw us a few curveballs. Don’t put off purchasing a term life policy – the effects could prove devastating for those left behind. Take the time to understand your policy, the riders, and who benefits upon your death. Be sure to review your policies with your insurance agent every few years, or as major life changes occur. The agents are there to help you navigate the many options out there and assist you in choosing the best option for your individual needs.