Having worked extensively with both term life and group life insurance in the past, here’s why you should keep your term insurance and not use group life insurance as a substitute.
First, let me start off with a table comparing attributes.
|Attribute||Term Life Insurance||Group Life Insurance|
|Ownership||Policyowner (you).||Your employer.|
|Premium structure||Guaranteed level for term (10,20 or even 30 years).||Projected level until your next quinquennial age increase (ages 30,35, 40, etc).|
|Premium guarantees||Guaranteed in the policy.||No guarantees, prices could change next year.|
|Control||You are in full control of all aspects of the policy.||Employer controlled.|
|Conversion||Option to exchange your term to permanent/lifetime coverage.||Option to convert only upon cessation of your group life insurance coverage.|
Here’s why you care about those attributes:
- Ownership. You have no control over the ownership of a group policy, it’s controlled by your employer. This means they can cease offering the coverage. They can switch companies to an insurer that has higher premiums. They can reduce benefits. All without consulting you. With an individual term life insurance policy you control all of that.
- Premium structure. With a group life insurance policy, premiums can increase at unpredictable intervals, by unpredictable amounts. If you start your policy at age 34, your premiums will increase next year at age 35. Individual term life insurance premiums are locked in level for the duration of the ‘term’. You should be careful about comparing premiums between the two types of coverages as group insurance premiums will suffer from increases in the future.
- Premium guarantees. Pretty much nothing about group life insurance is guaranteed. Rates could change in the future because your employer changed insurance companies. Or they could change just because the insurer had unfavourable experience across their entire customer base. An individual term policy guarantees your premiums for the duration of the term (and normally beyond that for the entire duration of the policy). When you purchase an individual term policy all future premiums are displayed right in the policy, upfront.
- Control. With group life insurance insurance your employer can decrease available coverage at any time. They also dictate the coverage amount,without regard to your individual needs. And they pick the insurance company. All of these things are outside of your control. With an individual term life insurance policy you control all of that and more.
- Conversion. You’re group life insurance coverage stays at group life insurance coverage – unchangeable by you. If you lose the coverage (quit, etc) you have 30 days to exchange the group coverage for a pre-defined individual life insurance policy, most likely a whole life. That exchange is only available for 30 days – not before, and not after. With an individual term life insurance policy you can exchange or convert your term to permanent life insruance at any point up to the conversion expiry age. If you become uninsurable you’ll want to exchange to permanent immediately (to lock in your earlier age) rather than waiting until you quit.
Because of all of these factors if you’re comparing term life insurance vs group life insurance you should consider purchasing an individual term policy and treating the group life insurance coverage as non-guaranteed top-up to your coverage.