Do you have clients who have secured their life insurance through their employer group life insurance buy-up plan? If so, those clients are coming up on open enrollment in the next few weeks. Open enrollment is the time of year when your client’s employer allows them to make benefit elections on things like health insurance, group life insurance, and group disability insurance. In anticipation of your client’s open enrollment you may want to take a look at their group life insurance coverage and their buy-up options.
Group life insurance buy-up options allow an employee to increase their life insurance coverage above the basic coverage offered by their employers. As more and more employees are relying on their workplace as their primary source of life insurance protection, group life insurance buy-ups are becoming more popular. In addition, group buy-up options are usually the path of least resistance in terms of getting coverage in place. However, group buy-options can have their pitfalls.
Most group life insurance plans allow employees to buy-up from their base coverage provided by the employer from a Guaranteed Insurability or Modified Insurability standpoint. What this means is that the employee will not have to answer any medical questions, Guaranteed Insurability, or only a few questions and not have to undergo an exam, Modified Insurability.
The downside to this type of underwriting is that everyone is given the same rates, based on age, which in many instances is more costly to those who could obtain preferred underwriting through traditional term insurance.
Another pitfall, given the rates are based on age, as your clients grow older their rates can jump dramatically – typical group offer rates are broken down into 5-year increments. If you know your client requires insurance for more than 5 years, a more cost effective level premium term life insurance policy could translate to long-term savings in premiums.
Lastly, if your client leaves their employer most group policies allow you to take the life insurance with you. However, if your client plans on taking the policy with them they must convert the policy into a permanent policy, Universal Life, to do so.
With that being said, if your client is not a good candidate to go through the underwriting for individual life insurance, then group term through an employer could very well indeed be a good option. Although, if your client is in good to decent health he or she could lock in a favorable level premium for the right amount of coverage and the right term, and know they have it in place if they ever left their employer.
Please let me know if you have any questions or wish to do a cost/benefit analysis of a client’s group buy up life insurance coverage.
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