Should You Have Life and Disability Coverage Outside of Work?
Yes I said it: Insurance! The thing that nobody wants until
they need it or cannot have it. With insurance, you are purchasing the ability
to transfer risk to another entity. If you have ever played blackjack in a
casino and the dealer shows an Ace, he or she will ask if you want to buy
insurance. True when playing a $10 hand, most will decline the cost. What if
you are playing with hundreds of thousands or even millions of dollars that
your family may depend on? Would you take the insurance then? Hopefully you can
see the analogy by now.
So maybe you have insurance coverage offered through your
employer. Deciding to elect health insurance coverage or not is usually an easier
decision, but what about life and disability insurance? Often, group life and
disability insurance offered in the workplace can be obtained for cheap or even
at no additional cost, but does this mean that you have all you need and for
the best price?
Pros and Cons: Group Life Insurance
- Commonly, employer offers a certain amount of insurance at no cost to you
- May have the option to purchase more without needing to provide information on your health - could be beneficial if you have an insurability issue
- It may be cheaper to look outside the workplace if you are on the younger and/or healthier side
- Often times there is no portability
Pros and Cons: Group Disability Insurance
- Commonly, employer offers a certain amount of coverage for very little or at no cost to you
- May only cover just salary - if your job includes bonus and/or commission these may not be included
- There may be tax consequences if you receive income from this coverage if employer is footing the bill for coverage (or a large piece of it)
- Lots of employer plans are integrated with social security, which could leave you to collect part of your benefit from them
According to a 2018 report from the Bureau of Labor
Statistics1, the average person changes jobs twelve times during his
or her career. So, what happens if you leave your job? It is likely that you
will experience some employers that have great benefits and some that may not
even have benefits. Therefore, consider designing your risk management strategy
by getting coverage outside of work and using group policies to supplement - not
the other way around.
- Term life may be useful as it can be cheap and provide a lot more coverage for the price.
- Permanent life insurance may be desired as a tool to build an asset rather than renting a block of time.
- Personal disability coverage may be a good way to wrap around your group coverage. This type of coverage can be harder to qualify for and more expensive, but does that mean it is more likely to be utilized in a time of need?
It is fair to say that group insurance is a good piece to
your risk management strategy but may not be the end all be all solution.
Whether you believe you have this box checked off or not, it may be worth
double checking with your financial professional to make sure the structure is
appropriate. Having a gap in coverage level, coverage type, or cost could end
up being a huge mistake down the road.
