Why Employer Provided Life Insurance is Dangerous

Employers across most organizations provide group insurance plans to their employees. Group insurance is offered to the personnel and every employee receives the benefits under this larger corporate plan.

Employees covered under these policies often refrain from acquiring additional coverage because group insurance is available on a wholesale basis, which reduces its cost. This makes it more affordable for employees to acquire insurance coverage as opposed to individual plans that are more expensive. Also a good knowledge of income tax slab could help in tax exemption through life insurance

Another reason why employees covered under group insurance do not acquire individual policies is the convenience. The process of getting coverage is simpler and quicker under group plans as compared to the latter.

Although group coverage may be affordable and convenient, it is dangerous to rely only on such plans. Here are three reasons why employees must opt for additional life insurance coverage.

1.   Being underinsured

The death benefit available under group policies is limited to one or two times the annual salary of the employees. However, financial experts advise individuals to avail of higher coverage to ensure their loved ones do not face monetary difficulties in the case of their demise. Although individuals may sign up for additional insurance coverage under the group insurance by paying an extra amount; the coverage is inadequate. The additional coverage under the group benefits may be insufficient to ensure financial security to the beneficiaries in case of the death of the employee.

Being underinsured may be an extremely tough situation for the family members. It is, therefore, crucial for employees covered under employer group plans to acquire additional insurance through individual life insurance policies.

2.   Issues in case of job change or portability

An important but often overlooked fact is that group insurance coverage is applicable only as long as a person is employed with the organization. In case the individual quits or his services are terminated, he may be left with no insurance coverage. Some people may argue that their next employer would also probably offer insurance coverage. However, the new group plan may still be insufficient to protect the employee’s entire family. Furthermore, if a person is unable to find another job immediately (which is very likely in today’s economic scenario); he would not have any life coverage during the period. Moreover, if the individual, unfortunately, passes away in this time span, his survivors may face severe financial constraints.

A person may be in good health today, making it easier for him to acquire individual insurance coverage. However, his health in the future when he may decide to move to another company may not remain the same. This would probably make it difficult for the person to acquire an individual life insurance plan and only leave him with the option of paying a higher premium.

3.   Lack of guarantee

Under a group insurance plan, employees are restricted by organizational decisions. They are only able to choose from the options offered by the company. Furthermore, none of these benefits may be guaranteed and there are lots of terms and conditions to be fulfilled before qualification.

It is possible for a group insurance policy to be affordable in the present. However, the rates may increase in future or the company may even discontinue offering insurance. In such a situation, a person may even find it difficult to qualify for an individual insurance plan due to certain limitations. Therefore, it is important that an employee opts for an individual plan at the earliest to avoid inconvenience in future. Such a plan is customizable and offers flexibility to the insured individuals. They are able to choose an insurance plan that most appropriately suits their personal requirements.

Availing of an individual life insurance plan ensures adequate coverage. Moreover, the person does not have to depend on retaining the current job. Individuals are therefore advised to choose an individual life policy to secure the financial future of their loved ones.