Deciding if Group Term Life Insurance is a Good Deal or Not
Many people have access to life insurance through an employer or association, such as the AMA, American Dental Association, teachers association or local Union. When these plans are compared to commercially available individual term life insurance plans they often appear to be less expensive. These plans typically still require you to be in good health to get the best rates. They can turn you down or charge more if you smoke, are overweight or have other medical conditions.
What I would like to do is explain exactly what a group or association life insurance plan is. Since there is typically little or no commission being paid to an insurance agent you would think that it would be less expensive. It might very well come out less expensive, although you will not know until they finish the underwriting process and give you a final price. If you qualify, for instance, as preferred, they will honor that level for as long as you have the plan. Group life insurance usually is “age banded” , which means that once you qualify, most of these plans have a price rise when you enter a new age band . This could be at five year intervals , like age 45, 50, 55 or some other inverval. If you are planning to keep this for 20 years, for instance, you should find out the price increments along the way to get the total price. That is what you should compare to the individual 20 year term price. Sometimes the 20 year term is much better. You may also have to stay with the employer or association in order to keep the plan.
The other issue with group term is that if you need (or wish) to convert the policy to a permanent plan they have a conversion option, but usually to a permanent life with very high rates and poor cash accumulation.
The better individual term life plans have conversion options to better performing permanent plans. While you may not plan on converting it is important that this option remain in case your long term health changes for the worse and you become less (or un) insurable.