(Seven-minute read time)

Are you in the process of reviewing your life insurance plan provided by your work and feeling unsatisfied with the limited coverage it provides? Do you wonder why paying for private coverage makes sense when you have group coverage through work? Let’s evaluate the pros and cons of private and group life insurance (through your employer) and when you should and shouldn’t get private life insurance. Be sure to also check out our free cheat sheet and common Q&A’s about life insurance at the end of this article to ensure you are on the right track for your next steps in securing a stable future for yourself and your loved ones.

What Is The Difference Between Private and Group Life Insurance?

Private life insurance is a customizable plan that has one policyholder who is responsible for the cost of the life insurance plan. Meanwhile, group life insurance (through your employer) is a more general plan that has members share the risks and costs.

Since private life insurance is customizable, there are various types of insurance plans you can evaluate that will suit your situation: term life insurance, whole life insurance, or universal life insurance. Meanwhile, group life insurance through your employer only provides term life insurance.

Learn More About the Types of Life Insurance

Check out our article: What Type of Life Insurance is Best?

Evaluating Life Insurance: Consider These Scenarios

Everyone’s circumstances are different, therefore evaluating life insurance for yourself will be different compared to your work colleagues. Consider these two colleagues, Emma and Mike, who work for a mid-sized tech company that provides group life insurance.

Emma is 33 years old, single, career-focused, and currently working in the marketing department for the tech company. She is saving up to own a home and has no children at the moment but is considering the possibility of starting a family in the future. Emma is in excellent health, exercises regularly, and has no known health issues. She is contemplating a job change to pursue a new opportunity that aligns better with her long-term career goals.

Given Emma's current situation, she may consider the following life insurance considerations:

• Coverage Type: Since Emma is contemplating a job change and considering starting a family, a term life insurance policy can provide coverage during these crucial periods without a long-term commitment.

• Coverage Amount: Emma can calculate her coverage needs based on her current financial obligations and potential future responsibilities, such as a mortgage or supporting children.

• Portability: Given the possibility of changing jobs, Emma should consider private life insurance that is portable, allowing her to maintain coverage regardless of employment changes.

Emma decides to purchase a $500,000 20-year term policy for $22.77 a month to go along with her basic work insurance.

Mike is also 33 years old, happily married, and is actively planning to start a family in the next couple of years. He works in the IT department of the tech company and is not planning to change jobs in the near future. Both Mike and his spouse are in good health with no significant health issues. They have recently purchased a home and are considering life insurance to protect their growing financial responsibilities.

Mike may consider the following life insurance considerations:

• Coverage Type: Mike may consider a combination of term and whole life insurance. A term policy can provide coverage during the crucial family-building years, while a permanent policy can offer long-term protection and potential cash value accumulation.

• Coverage Amount: Mike should assess his current and anticipated future financial obligations, including the mortgage, potential children's education, and ongoing living expenses.

• Spousal Coverage: If both Mike and his spouse are working and contributing to the family's financial well-being, they might consider life insurance for both individuals to ensure financial stability in the event of the unexpected.

Mike decides to purchase a $50,000 whole life insurance policy for about $38.57 a month. He also plans to fast-track his mortgage payment, so he chooses a shorter-term policy, a $750,000 10-year term policy for $32.18 a month. His private insurance also goes along with his basic work insurance.

Although both Emma and Mike have the same group life insurance provided by work, they have different life insurance considerations. Since life insurance considerations can vary based on individual circumstances, career plans, and family goals, individuals need to evaluate their unique situations and work with a financial advisor to determine the most suitable life insurance strategy.

Pros & Cons of Private Life Insurance

Pros:

• Personalized to the individual who is covered

• More control over the underwriting process, potentially securing better rates if you're in good health

• More options for coverage

• Option to choose insurance type: term, whole life, or both

• Can extend coverage beyond your employment years

• Is an asset that grows in value (whole life insurance)

• Peace of mind

Cons:

• Requires time to evaluate types of plans

• Can be the more expensive option, especially if you are high risk, such as bad health

• May require extra steps to set up, for instance, medical exams

Pros & Cons of Group Life Insurance

Pros:

• Most convenient

• More affordable (members share the cost)

• Does not require a medical exam

Cons:

• Your employer chooses the coverage

• Your employer could change their provider or terminate the life insurance at anytime

• Limited coverage

• Does not provide options in type of insurance; acts only as a term life insurance

• No underwriting or limited underwriting control

• Limited number and type of beneficiaries you can designate

• Ends when you quit/retire

• No cash value over time

Why You Shouldn't Get Private Life Insurance

• If you believe your work life insurance covers all the essentials you need and you plan to stay at your current job for a long period of time

• You have extreme budget constraints

• You don’t have any dependents and you don’t have ongoing obligations you need to cover (no liabilities if you pass away)

• High-risk health conditions that would cause you to be declined

• If short-term financial goals are your higher priority

• If you already have more than enough accessible savings and investments that can provide financial support for your loved ones

Why You Should Get Private Life Insurance

• You have long-term objectives, such as Family & Legacy Planning

• If your work life insurance does not cover all your needs, you can get private life insurance to fill in the gaps

• If you change jobs frequently and/or seeking to find a new job in the near future

• The longer you wait, the more expensive it’ll become: the older you are, the more risk. Higher premiums

• If you are on a budget, consider term life insurance; it is more affordable in the beginning. However, whole life insurance has the potential for more savings in the long run

• If you decide to get whole life insurance, you are investing in an asset that grows in value. You can use whole life insurance to cover unexpected expenses or even supplement your retirement income

Conclusion

Your life insurance assessment will be different from your colleagues, so why settle for the same life insurance plan? For most people, adding at least a term policy on top of your work insurance is the best choice. When managing risk, this option has the most control and guarantees you remain insurable even if you leave your company or if your company changes providers.

For a quick summary of the pros and cons when considering adding private life insurance to your existing work insurance, complete the form below to receive a free downloadable one-page guide.

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