Life insurance at work is often inexpensive and easy to obtain, but there are some serious drawbacks to the coverage. Not that you shouldn’t keep your life insurance at work (and when available, it’s generally required), but you should be aware of the shortfalls of this type of coverage.
Group life insurance at work is tied to your employment. If you are terminated or switch jobs, you will by default lose your life insurance coverage. Not only does that require that you purchase new life insurance at that time, but if you’ve become uninsurable you may not be able to do so.
Group life insurance at work isn’t guaranteed past the current year. Your premiums, while often projected to remain level in 5 year increments, are not guaranteed. Premiums can increase unexpectedly because the insurance company chooses, or simply because your employer decides to switch life insurance companies for their plan. Your employer could also simply cease offering these benefits.
Most Canadians with families should have 10-15X their gross income. Most group life insurance coverages at work offer 1-3X your income, leaving a huge shortfall. If you’re thinking ‘I have life insurance’, you should actually be thinking ‘do I have enough coverage’ and with group life insurance at work the answer is almost certainly no – you should also have an individual life insurance policy as well.
Group life insurance coverage premiums are structured by ‘age bands’, so your premiums are projected to remain level to your next quinquennial age – i.e. premiums are projected to increase at age 30,35,40,45,50....etc. As you get older, your costs will increase and there’s no way to know what those future costs will be. By contrast, a term life insurance policy can provide guarantees for your premiums and your coverage to remain level for 10,20 or even as long as 30 years. That ensures that your premiums and coverage can’t change or increase while you still need the insurance.
In Canada, group life insurance at work is required to have a 30 day conversion period. This means if you no longer are eligible for coverage (you’re terminated, or you quit), that you have 30 days to trade in your group life insurance for an individual policy. This trade is done without a medical exam and thus is an extremely important benefit for people who are uninsurable.
Unfortunately life insurance companies and HR departments rarely notify you of this benefit, so if you leave your employment it’s vital to remember that this option is available to you – it’s unlikely anyone else will tell you.