Most people understand why life insurance is important to their finances – it shifts the financial risk of premature death from the policyholder to the insurance company. However, many people do not understand the types of policies and the protection they provide.
So, let’s break it down by looking at two common types: group term and private term life insurance. By understanding their differences, you may be able to make more informed decisions to help protect your family.
Group Term Life Insurance:
Group term insurance is typically offered as a benefit from your employer that lasts for a set amount of time, usually the length of your employment. It is often connected to how much money you make. For example, if your salary is $50,000, a group term life insurance policy may offer a total coverage of two times your salary or $100,000. Additionally, some employers allow their employees to purchase more group term insurance for added coverage of their lives or the lives of family members.
Group term insurance is also less expensive than private term insurance, and underwriting is not usually required. However, it is important to note that group term insurance policies may not be portable if you leave your job, whether by retiring, getting fired, or finding a new job.
Private Term Life Insurance
Unlike group insurance, individuals have the option to buy private term life insurance. Although private term insurance shares similarities with group term insurance, such as providing coverage for a specific time frame, there are key differences to consider:
- Underwriting Requirements: Private term insurance typically requires an underwriting process, which means you may need to go through a health assessment or provide medical information. This can affect the cost of the insurance or, in some cases, result in denial of coverage.
- Portability: Private term insurance offers the advantage of portability. As long as you continue to pay your premiums, this type of insurance remains valid, even if your circumstances change or you switch jobs.
While group term insurance may seem like a cost-effective option, it is essential to consider not depending solely on it because it lacks portability. In other words, your coverage may vanish if you change jobs or retire.
Having private insurance as the core of your insurance plan can result in consistent coverage, regardless of your employment status or changes in your career.
It is worth noting that private insurance is somewhat pricier compared to group insurance. However, if you are in good health, it remains reasonably affordable. You can explore private insurance quotes through services like Quickquote to get an idea of the costs involved.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
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