Group Insurance – Only Part of the Solution

Ownership of individual life insurance at its lowest level in 30 years

The Life Insurance and Market Research Association (LIMRA) 2013 study shines a light on a developing problem for Canadian households:

• Individual ownership of life insurance was at its lowest level in 30 years;
• 3 in 10 households did not have individual life insurance at all;

Why group life insurance may not be all that you need

If your goal is to replace income for your family for more than 2 years, you may want to add an individual policy to your group insurance coverage.

According to the same LIMRA study, on average, households with only group coverage can replace the household’s income for less than 2 years.  While households with both group and personal life coverage can replace income for more than 5 years.

While group life insurance provided by an employer is a valuable benefit, it does have limitations when used as the primary source for life insurance protection.   Some of the reasons group insurance should not be relied on solely for family life insurance include:

1. Group Insurance is not totally portable: If you leave your job, your group life insurance typically does not go with you.   While it is true that some of your group benefits may be converted to an individual plan when you leave, the plans available for conversion for life insurance are often extremely expensive and are quite limited.   Given that a recent Financial Post survey reports that only 30% of respondents stayed in their jobs for more than four years, this could be problematic.   Having additional personal coverage offers a safety net if you find yourself between jobs without coverage. 

2. Group Life Insurance coverage is often inadequate:  Most employee benefit plans provide group life insurance as a multiple of earnings up to a maximum.  A common schedule is two times salary and the maximum may leave you underinsured. 

3. Renewal of Group Insurance is not guaranteed: It is important to be aware that the contract to provide employee benefits is one between the employer and the insurance company.  The employee has little or no control.  The coverage may be cancelled by either the company or the insurer.  Another concern is that future premiums may not be guaranteed.  

4. Group insurance is not flexible for planning: While group coverage is usually a low cost source of life insurance, it should be looked upon as a top-up to personally held life insurance which provides the necessary protection.  Proper financial planning will determine how much coverage is required to protect your beneficiaries in the event of your death.

Why consumers don’t act

While the increasing willingness to rely on group life coverage may be one reason why life insurance ownership is at a low level, the LIMRA study also lists five difficulties that consumers have when making decisions about their family protection options.

1. Difficulty in understanding policy details;
2. Are unfamiliar with life insurance;
3. Difficulty in deciding how much to buy;
4. Uncertain about what type of life insurance to buy;
5. Worried about making the wrong decision.

Contact me if you are one of the many Canadians who would benefit from a review of your options to determine if you have an adequate mix in your insurance portfolio.  As always, please feel free to use the sharing buttons below to forward this information to anyone you may think would find this of interest.