Sears recently announced some unsettling news for its retirees: the retail company is slashing its life insurance benefits for a number of its more than 90,000 retired employees.
The notice allegedly gives retirees the option to convert all or a portion of their group coverage into an individual whole life policy and cover the costs of premiums. Alternatively, affected retirees could have to purchase their own individual policies, in which case many would be denied due to their age and pre-existing conditions.
This is particularly unfortunate because purchasing life insurance for the first time as a senior can be prohibitively expensive, and depending on existing health conditions, it could be nearly impossible. In the wake of the Sears news, consumers are left with one important takeaway: Employer-provided life insurance shouldn’t be solely relied upon for long-term coverage.
My company helps people get individual life insurance online. Here are some of my arguments about why I believe relying solely on group life insurance is a mistake.
Group life insurance is cheap and convenient for a reason.
Most employers provide group life insurance at little or no cost to the employee. But there’s a catch: group life insurance policies offered by employers typically provide the bare bones in terms of coverage, often the equivalent of a year’s salary. For instance, if an employee earns $45,000 per year, the typical group plan coverage would only amount to $45,000. It’s a good starting point, but if a spouse or a family also relies on that income, an employer-provided life insurance policy is hardly enough coverage to protect their standard of living and fulfill their long term needs. Case in point, 69% of employees say the group life insurance they have isn’t enough to adequately protect their family.
Here’s an article my company uses to educate consumers about this problem.
Coverage equal to a year’s worth of income can be sufficient for certain categories: young professionals with no dependents, for example, are often well served by employer-provided life insurance: it is cheap, convenient, and provides adequate protection. But most people should consider expanding their protection beyond the modest levels of group life policies. The DIME method is a simple method of assessing one’s coverage needs by factoring Debt, Income, Mortgage, and Education into the calculation.
Here’s a page we provide to show consumers how to use the DIME method.
2. Group life insurance (generally) isn’t portable.
Employer-based group life insurance is only as reliable as at-will employment in a strong economy: in the event of a layoff, termination, or voluntary career change the benefit is not usually portable.
Some group life insurance policies do provide the option to continue coverage “through the Conversion and/or Portability option in your group plan.” When a group policy offers this, it may offer the outgoing worker the choice of converting the coverage to an individual whole life insurance policy or “porting” it to another term life policy. Employees usually have a 31-day window from the date their coverage ends to apply for either option.
When participating in group life insurance plans that are not portable, employees with dependents should contemplate having a personal life insurance policy with a predictable term expiration date. It can be tempting to consider postponing the purchase and just buying personal life insurance if and when group coverage is lost: not such a good idea because…
3. Life insurance is like a fine wine: it gets pricier as we age.
Age is a primary factor in determining the level of risk and therefore the availability and price of life insurance. Sears retirees in their 60s, 70s, and 80s could have trouble securing coverage both on account of age and of all the minor and major health issues that come with time.
It is normal to procrastinate when it comes to purchasing personal life insurance: we all tend to believe that the unthinkable could happen, but that it won’t happen today. “Tomorrow” is everyone’s favorite word when it comes to diets, exercise and life insurance. The fact of the matter is: starting a diet or exercise tomorrow likely won’t increase their price, but the cost of life insurance increases steadily over time.
It’s obvious why so many consumers rely on group life insurance: It’s as easy as checking an opt-in box during open enrollment. The underwriting requirements of personal life insurance policies — on the other hand — typically include visiting an agent and being visited by medical personnel for blood and urine tests. A few technology companies, like mine, have started to innovate the outdated practices of the industry and are now making it possible to apply for coverage online and be approved without medical exams. By making access to personal life insurance faster and more convenient, more families can opt for peace of mind and protect themselves.
Peter Colis is the chief executive officer and co-founder of Ethos, a new kind of digital life insurance company which makes simple and ethical insurance for families. Before he started Ethos, he was the CEO and co-founder of Ovid, a life insurance marketplace company.