Life insurance can often be very confusing. When you hear terminology like “individual life” versus “group term life”, how do you know the difference? Should you choose one or the other, or should you have both? And most importantly, are you making the right decision for you and your family? To help you decide, here’s a breakdown of what each type of life insurance means and how they differ.
Individual Life Insurance
Individual Life Insurance is an individual policy that is owned by you, and you can take it with you into retirement. You pay a premium rate based on your age at the time of application. Although premiums are higher initially, they do not increase due to age, nor does your coverage reduce due to age. You can potentially save money over the life of the policy if you keep it for a considerable number of years. So it’s ideal to purchase individual life insurance earlier on when the premiums are affordable, and then keep it into retirement. You do not have to apply for coverage in order to apply for a Spouse, Child or Grandchild policy. You own this policy, so if you change jobs or retire, you will pay the same premium on direct bill with the insurance company. The insurance company cannot cancel your policy unless you stop paying the premium. Otherwise, only you can cancel it.
Group Term Life Insurance
Group Term Life Insurance is a policy intended to last during your working years only. It is a policy that is not an individual contract but one that is owned by your employer. You are part of your employer’s group contract and can be covered under the group plan, if eligible. Although it is inexpensive initially, your costs increase at each new attained age bracket (typically every 5 years), meaning your premium rates will increase as you get older. It is low cost for higher benefit amounts, but only in your working years. Reduction of benefits occur once you reach a certain age (typically 65 or 70). You must have coverage in order to apply for a Spouse or Child policy. A group contract can be cancelled by the insurance company or by your employer. The coverage will terminate if you leave your job. Some group policies have portability options, but contain exclusions or restrictions and premiums will increase. Portability ends when you reach a certain age, and your coverage will cancel at that time. Some group policies have conversion to individual whole life, if available. However, premiums will increase significantly, so this option can often be unaffordable.
Side by Side
Life insurance can be a very flexible and powerful financial vehicle that can meet multiple objectives, from providing financial security to building assets and leaving a legacy. Deciding whether to purchase individual life or group term life insurance is a personal decision that should be based on the financial needs of your beneficiaries as well as your financial goals. Consider the following chart to determine which one is right for you.