Whether you are a new startup founder, a stable small business owner or an on-job executive, life insurance is one of the most important investments you can possibly make. With a good life insurance plan, you can gain a sense of security for your loved ones while also building equity over time. But even if you have already decided you want to invest in life insurance, there are still several more important decisions involved in the process.
Before you can decide what kind of life insurance you want to get—whether it be term, whole-life, or any combination of the two—you are going to need to decide where you want to get it. The two most common ways to get life insurance are either through an employer or through the purchase of an individual plan. As is the case with every long-term investment, there are various pros and cons associated with each of these options, and the type of life insurance that is best for you is ultimately going to depend on your personal financial goals.
Employer Sponsored Life Insurance
As is also true with health insurance, there are several different ways that your employer can provide you with life insurance:
- Providing basic group life insurance as an automatic benefit received upon employment
- Offering supplemental group life insurance as an optional benefit
- Matching your contributions or fractionally subsidizing your supplemental group plan
- Creative combinations of the options above
Basic group life insurance is typically offered in an amount similar to an employee’s annual salary and is provided automatically. However, for many individuals, this kind of coverage provides much less than they need. Supplemental coverage is usually presented as an optional plan that will provide coverage in addition to that which is already received upon employment.
Really, the main benefit of group insurance is the convenience. Many individuals do not want to have to shop around and constantly be having to make payments on their own. Furthermore, because enrollment in some group insurance plans does not require a medical examination, if you have a severe medical condition, you might be able to end up getting a better deal than you would if you bought life insurance from an individual provider.
If you are relatively healthy, however, group insurance rates are usually nothing to get too excited about (though it never hurts to look and see). What is perhaps an even greater drawback is that the vast majority of people do not stay with the same employer their entire life. Once you change employers, you will lose coverage. To make matters worse, if your new employer doesn’t provide life-insurance, you will then be forced to shop for it on the open market and might end up having to pay a much higher rate than you would have if you had just bought it to begin with when you were younger.
Individual Life Insurance Coverage
Individual life insurance plans are much more flexible and can be considered to be not just a source of security, but a valuable financial asset. There are two main types of individual life insurance plans which can either be purchased separately or combined together:
- Term life insurance will consist of monthly payments and cover you for a specific amount of time (the term). For many people, term life insurance can be an incredibly affordable option, especially if you are young and healthy.
- Whole life insurance is more expensive, but it also generates wealth over time that you can “dip into” even before you pass away. For many individuals, this is a great supplement for their retirement plan.
The main drawback of getting an individual life insurance plan instead of a group plan is that it will be up to you to find a plan that works, and be sure to actively be making payments over time. But if you are willing to put in the time and effort required, getting an individual life insurance plan is usually one of the safest and wisest investments you can possibly make.
One major benefit of having an individual plan is that no matter what your employment situation may be, the plan will still be there as a source of security. Having the freedom to shop between different insurance providers, find a plan that fits your budget and needs, and possibly accumulate wealth over time are all major benefits of choosing to get life insurance on your own accord.
Does Group or Individual Life Insurance cost more?
Evaluating the cost of an individual life insurance plan is much easier than evaluating the actual cost of a group plan. Whether you are purchasing term life insurance or whole life insurance, you will generally be making monthly payments that will be laid out in a payment schedule provided by your insurance agent. Whole life insurance often consists of payments that will change over time, but the payments will still be made monthly.
In order to find a free quote on what term life insurance might cost you per month, a good place to begin is by running quote comparisons on a site like True Blue Life Insurance. There, you will immediately find a quote without having to give out any personal information, and at the very least, this quote can be used as leverage when comparison shopping other life insurance providers.
Determining the actual cost of a group plan can be much more difficult. Even if your company insurance plan clearly provides you with a cost-benefit analysis of the plan, you still do not always know what you are necessarily giving up in order to get it. For example, because many group insurance plans are a benefit provided upon employment by the employer, some employees may be under the wrong impression that life-insurance at their company is “free”. But if you are receiving $100 less per month in compensation for a plan that would have otherwise cost $50 per month on the open market, not only is the plan, not “free”, you are functionally losing money over time.
The reason why the cost of employer-provided life insurance is so difficult to determine is because you can’t really know how much more you would be getting paid in a world where your employer isn’t providing it for you. But in general, if given the choice between getting paid more and having to get life insurance on your own or getting paid less but receiving life insurance as a benefit, you will probably end up saving more by being able to shop on the open market.
The Bottom Line:
Being a small business owner, not just your family members are the only people depending on you, but a whole team of employees could have a disastrous situation in case if you die. And, as a whole it can destroy the company you built with so much of hard work, so it is crucial to consider buying a good life insurance plan for yourself as well as for your employees.