Group (Term) Life Insurance

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Topic Author
JeuneCracoucas
Posts: 27
Joined: Wed Mar 17, 2021 3:42 pm

Group (Term) Life Insurance

Post by JeuneCracoucas »

Hello,

My spouse (38 year old, healthy) just started a new job and she's being "offered" a group life insurance. I read here and on the White Coat Investor's website the pros and the cons of such insurance policies and I'm almost sure my spouse should get an individual policy at this point, but I'd like to crunch the numbers to compare group and individual term life insurance rates.

For the sake of comparing rates, I looked for example at a $3M value: the group insurance premium would be $96/month. Now the comparison with an individual policy is difficult because you want to compare apples with apples, and the duration is different: with an individual policy you can choose the length (5, 10, 20... years), but with the employer's policy you're insured as long as you're employed and after that things might not be as portable as what it seems. So I'm not sure how to do a strict comparison unless I have more information, hence the following questions:

1) The group policy says you can keep the insurance if you leave your job but they premiums may change. Does anybody know typically how the premium change? Say you get the policy at 40, stay employed until you're 50 then you leave, then does your new premium line up with what a newly hired 50-year old employee would pay? In my spouse's employer's policy, the premium would triple.

2) The policy says that premium rates may change over time. I read that group insurance rates typically change every 5 years. But by how much? Is it inflation-based?

3) Is there any particular red flags you see in the policy below?

Regards

PS: for information, this is all I could find the group insurance: https://www.metlife.com/content/dam/met ... ummary.pdf
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Group (Term) Life Insurance

Post by exodusNH »

JeuneCracoucas wrote: Mon Sep 20, 2021 5:48 pm Hello,

My spouse (38 year old, healthy) just started a new job and she's being "offered" a group life insurance. I read here and on the White Coat Investor's website the pros and the cons of such insurance policies and I'm almost sure my spouse should get an individual policy at this point, but I'd like to crunch the numbers to compare group and individual term life insurance rates.

For the sake of comparing rates, I looked for example at a $3M value: the group insurance premium would be $96/month. Now the comparison with an individual policy is difficult because you want to compare apples with apples, and the duration is different: with an individual policy you can choose the length (5, 10, 20... years), but with the employer's policy you're insured as long as you're employed and after that things might not be as portable as what it seems. So I'm not sure how to do a strict comparison unless I have more information, hence the following questions:

1) The group policy says you can keep the insurance if you leave your job but they premiums may change. Does anybody know typically how the premium change? Say you get the policy at 40, stay employed until you're 50 then you leave, then does your new premium line up with what a newly hired 50-year old employee would pay? In my spouse's employer's policy, the premium would triple.

2) The policy says that premium rates may change over time. I read that group insurance rates typically change every 5 years. But by how much? Is it inflation-based?

3) Is there any particular red flags you see in the policy below?

Regards

PS: for information, this is all I could find the group insurance: https://www.metlife.com/content/dam/met ... ummary.pdf
Does your spouse need life insurance? Does anyone depend on their salary? If not, they don't need insurance.

If they do need insurance, it's probably best to get level term insurance for the duration that their income is necessary. This way you know that the premiums won't change during the term.

Otherwise, the risk is that if your spouse changes jobs, either willingly or not, they may lose the insurance, or it may be cost prohibitive. If they still need it at that point, they will have to get separate term anyway, but now it will be more expensive since they're older, and maybe now have some health condition that might prevent getting insurance at all. (Let's hope not!)

Of course, if the employer offers something like 1x salary at no cost to the employee, that's a no-brainer. You just would the get a separate level term plan outside the company for the balance.
Topic Author
JeuneCracoucas
Posts: 27
Joined: Wed Mar 17, 2021 3:42 pm

Re: Group (Term) Life Insurance

Post by JeuneCracoucas »

The employer offers $50k of basic term life and AD&D at no cost. Well, the cost might be absorbed in the salary lol. And then you can ramp up the coverage level as you increase your premium following the table in the pdf attached.

My job isn't as stable as hers, and we're planning to have kids soon. So in a way yeah the term life insurance could be a good idea, especially now that she's still young and healthy.

I was just trying to figure the math for a situation like job change. Her policy says you can carry the policy after you leave without medical exam, but it says the rates may change and I was wondering what that typically means.
Rainmaker41
Posts: 733
Joined: Tue Apr 26, 2016 11:34 am

Re: Group (Term) Life Insurance

Post by Rainmaker41 »

Sign up for the fee policy. Get more individually.
85% Global Stock, 15% US Fixed Income
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Group (Term) Life Insurance

Post by exodusNH »

JeuneCracoucas wrote: Mon Sep 20, 2021 6:32 pm The employer offers $50k of basic term life and AD&D at no cost. Well, the cost might be absorbed in the salary lol. And then you can ramp up the coverage level as you increase your premium following the table in the pdf attached.

My job isn't as stable as hers, and we're planning to have kids soon. So in a way yeah the term life insurance could be a good idea, especially now that she's still young and healthy.

I was just trying to figure the math for a situation like job change. Her policy says you can carry the policy after you leave without medical exam, but it says the rates may change and I was wondering what that typically means.
Take the free $50k.

Price out separate level term insurance. (Level term means the premiums don't increase during the term of the policy.) You can find recommendations on this board. One that comes up often is www.term4sale.com.

Whatever you do, don't buy whole life, universal life, or permanent life insurance.
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Stinky
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Location: Sweet Home Alabama

Re: Group (Term) Life Insurance

Post by Stinky »

JeuneCracoucas wrote: Mon Sep 20, 2021 5:48 pm Hello,

My spouse (38 year old, healthy) just started a new job and she's being "offered" a group life insurance. I read here and on the White Coat Investor's website the pros and the cons of such insurance policies and I'm almost sure my spouse should get an individual policy at this point, but I'd like to crunch the numbers to compare group and individual term life insurance rates.

For the sake of comparing rates, I looked for example at a $3M value: the group insurance premium would be $96/month. Now the comparison with an individual policy is difficult because you want to compare apples with apples, and the duration is different: with an individual policy you can choose the length (5, 10, 20... years), but with the employer's policy you're insured as long as you're employed and after that things might not be as portable as what it seems. So I'm not sure how to do a strict comparison unless I have more information, hence the following questions:

1) The group policy says you can keep the insurance if you leave your job but they premiums may change. Does anybody know typically how the premium change? Say you get the policy at 40, stay employed until you're 50 then you leave, then does your new premium line up with what a newly hired 50-year old employee would pay? In my spouse's employer's policy, the premium would triple.

If your spouse "convert" your group term life insurance to an individual policy after she leaves her job, almost certainly she will be offered only a whole life policy, at an exceptionally high premium rate. The reason that the premium rate will be so high is that the vast majority of people who exercise the "conversion" option in their group term policies are those who are medically unable to get life insurance anywhere else. Insurers know that the group of people, as a whole, who exercise conversion privileges have very high mortality rates, and they charge a high premium for it.

In other words, don't count on keeping this group life after your spouse leaves her job. It will cost you an incredibly high premium.


2) The policy says that premium rates may change over time. I read that group insurance rates typically change every 5 years. But by how much? Is it inflation-based?

I think that the step-rated group term life rates are shown at the bottom of the brochure.

3) Is there any particular red flags you see in the policy below?

General Boglehead advice is to NOT rely on group term life for primary insurance needs. Rather, accept whatever "free" coverage is offered, and then buy an individual life policy to meet the primary insurance needs.

Regards

PS: for information, this is all I could find the group insurance: https://www.metlife.com/content/dam/met ... ummary.pdf
See answers embedded above.

Post back with questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
JeuneCracoucas
Posts: 27
Joined: Wed Mar 17, 2021 3:42 pm

Re: Group (Term) Life Insurance

Post by JeuneCracoucas »

Thank you all for the detailed responses. I think the decision is pretty clear.
SavinMaven
Posts: 94
Joined: Fri Sep 25, 2020 3:55 pm

Re: Group (Term) Life Insurance

Post by SavinMaven »

I didn't choose my life insurance strategy intentionally, but so far, it has worked out - though obviously not been tested yet!

When I got my first real job, I signed up for the max I could get through work. Left that job after two years, have been paying individually for 9 years since - the rate's not bad at all. At my next job, I signed up for the max there too, am still at that job, and meanwhile, I also took out an individual term policy as well.

Although I fell into it, I like the spacing at which the terms end, and the diversification of being able as we accumulate assets to let some lapse if we no longer need that much coverage (maybe you can do this with one big policy, but maybe not).
chemocean
Posts: 1573
Joined: Mon Dec 19, 2016 8:45 pm

Re: Group (Term) Life Insurance

Post by chemocean »

Group (Term) Life Insurance doesn't necessarily mean that you don't need to be rated to get the policy. Group policies are limited to a defined group. If you are in good health, it is advisable to go through the rating process to reduce premiums. Many professional organizations have group insurance programs for which you need to be rated (Metlife policies through American Physics Society). These policies are usually cheaper than open market policies because the population of the professional organization is usually healthier than the general population. Of course, you need to remain a member of the professional organization for the duration of the term policy.
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