Electronic or paper
We seem to be content–receiving notification that our paycheck has been electronically deposited, being electronically notified our bills need to be paid and notification they have been handled, groceries ordered electronically and notified they can be picked up curbside, and so many other financial transactions which used to be face to face are now processed through the sterile electronic environment.
However, in this world of electronic financial transactions there are some things we still want to touch and handle to reassure ourselves the transaction is secure.
Life Insurance acquisition trends
Even though this too is having a paradigm change, the process of purchasing life insurance face-to-face still has a large consumer base. Ten years ago, 64% of the consumer base this was the preferred method but now only 41% prefer it. This is due partially by the Millenial and Gen Z buying practices coupled with the group life insurance market which has no face-to-face activity. Since 2009, there has been a 0.4% decline in group policies and a 1% increase in individual policies. It will be interesting to see if the pendulum will swing back as employers are having more difficulty in attracting new employees and will need to enhance their employment incentives.
According to a recent LIMRA study, 52% of Americans have some form of life insurance protection with 27% receiving their coverage through group life insurance policies. While the average death benefit of individual policies is $178,150, group life insurance coverage is in most cases only one and a half times a consumer’s annual income. This leaves a household dreadfully short on the amount actually needed for a family’s standard of living not to be affected by an untimely death and should not be considered as the sole source of replacement income. Researching even deeper into life insurance coverage, this same report indicates only 52% of men have some form of life insurance coverage and only 43% of women have coverage.
This reveals a very real serious financial dilemma. In our workaday world, the second income is not a luxury but a necessity in many households, just to meet the financial demands of those households. It is an easy argument to be made that the secondary income is equally as important as the primary income.
Mechanics of a group policy
With group policies still being a viable provider of life insurance protection, it is informative for a consumer to understand the mechanics of a group policy. These are usually part of a benefit package being offered by an employer to incentivize an individual to go to work for that company.
It is usually provided with no medical requirements having to be met nor any other evidence of insurability. This can be achieved due to the spreading of the health risk factor with more individuals being insured. It also allows an adjusted premium rate to be applied since all ages are recognized and accounted for with an average age being used to establish the rate. This is particularly attractive to an older employee whose age would work against him/her in the private market. Conversely, it may not be the least expensive for a younger employee since they are being lumped together with the older employee; however, since no medical or evidence of insurability is required and the premium is usually paid by a payroll deduction, it may offset the higher rate.
On some occasions those who are otherwise uninsurable have found this as a way to provide valuable financial security to their household because once they have become employed the coverage provided can be converted if employment is terminated.
When you do accept employment and have passed your probation period, if any, your human resource officer will generally review your employment requirements and benefits, answer any questions or concerns, and then provide you with a certificate of insurance showing what benefit you have under the master policy. This certificate will have on it the master policy number and is the only document you will have, so place it with your valuable papers for safekeeping.
There are concerns
A couple of concerns should be addressed if one will only have protection provided from this group policy. Since these policies are being offered with a benefit package, they are subject to change and even termination at the whim of the employer. The coverage also ends upon your retirement. It may be convertible at some point, but it will be at the higher monthly premium due to your age and only to the face amount provided while you were employed. You may be able to increase the coverage, but that would be subject to your being occupationally and medically able to qualify.The coverage is also not normally transferable in the event of employment change, leaving you subject to a period where no coverage would be in force.
To sum it up
It is a truism that a hungry child sitting down to a warm meal after a father or mother passed doesn’t care whether the meal was paid for by term, whole life, individually purchased policy or coverage from a group life insurance policy. The child only knows the providing of it came from someone who cared. Whatever course of action you take to provide such coverage should never be an afterthought but should be one of the main pillars of your financial security plan. Using whatever resource is available will give you peace of mind knowing you have met your financial obligation to your loved ones whether you are here or not.