As a young physician embarking on your career, securing adequate life insurance becomes a pivotal aspect of financial planning. Group life insurance and term life Insurance are two primary options available, each with its unique characteristics. Understanding the similarities and differences between these types of insurance is crucial for making informed decisions that align with your goals.
What is Group Life Insurance?
Group Life Insurance is a type of life insurance that is typically provided by an employer, but can also be provided by a professional organization, or association. For the sake of this blog, we are going to look at it only as something provided to you by your employer. Just like other types of life insurance, the primary purpose of group life insurance is to provide a death benefit to your dependents in the event of your death.
Group life insurance is often part of your benefit package offered by your employer. Your employer typically subsidizes a portion or the entire premium, making it a cost-effective way to obtain life insurance coverage. In many cases, basic coverage is provided at no cost to you, with the option to purchase additional coverage at a relatively low cost.
Differences Between Group Life Insurance and Term Life Insurance
Portability: Group life insurance coverage ceases if the policyholder leaves the employer, potentially leaving gaps in coverage. Term Life Insurance policies are individually owned, which means your coverage continues regardless of employment changes, providing consistent protection throughout the term of the policy.
Customizability: Group life insurance often comes with predetermined coverage limits set by the employer, which may not align perfectly with an individual’s specific requirements. For example, your employer might provide “2x salary, up to $450,000.” Term Life Insurance offers a higher degree of customizability as you can choose the coverage amount and term length that best suits their needs.
Premiums: The cost of group life insurance above what your employer provides is often discounted, however it rises over time. Most of the time the premiums increase incrementally in age bands, i.e. 30-34, 35-39, 40-44, 45-49, etc. Here’s an example of premiums based on age bands from one of our client’s employers. Term life insurance premiums are fixed when you purchase the policy. That means they’ll remain unchanged throughout the entire term of the policy whether that’s 10 years, 15 years, or even 30 years.
Underwriting Process: Group Life Insurance usually involves minimal or no medical underwriting, making it accessible to those who might have pre-existing health conditions. Term Life Insurance often requires a more comprehensive underwriting process, including medical exams and health assessments, which can impact the premium rates based on your health status.
How We Consider Group Life Insurance
When we review our clients’ employer benefits, we always make sure they are enrolled in the maximum amount of group life insurance that’s provided by their employer. This is mostly “free” coverage that requires no medical testing, so they might as well take advantage of it. I say that it’s mostly free because the cost of any insurance over $50,000 is required to be included in your paystub as imputed income. Even with that in mind, it still makes sense to accept whatever amount your employer is willing to provide.
For additional group coverage, sometimes called supplemental, we typically advise clients to pass on this benefit. The main reason for this is the portability for group life insurance. We believe it doesn’t make sense to pay for coverage that you won’t keep if you leave your employer. The exception to this is if the client has pre-existing health conditions that might make obtaining individual term life insurance more challenging or expensive. In the case of pre-existing health conditions, we recommend clients take the maximum amount provided by employers, as well as purchase as much group insurance as they need to protect their family.
Let’s go over an example to illustrate how group insurance can be used to make sure you are well insured. Dr. Jaimes is married with two children and recently accepted his first attending job in Sarasota, Florida. He is pulmonologist and will work for a private group, earning a salary of $325,000. His wife will continue working as an elementary teacher. They aren’t from Florida originally and don’t have any family in the area, but thought it would be a fun place to live. After talking, the couple decided that Dr. Jaimes should get $1,250,000 in term life insurance. His employer provides 2x his salary as group life insurance, which equals $650,000 His employer also offers the ability to purchase supplemental life insurance. Dr. Jaimes and his wife are cautious about having his entire life insurance amount coming through his employer, and rightfully so. Because they just moved to Florida and it’s his first attending job, they don’t want to have zero life insurance if they ever decided to change jobs or move away. Instead, Dr. Jaimes purchased $600,000 in term life insurance to round out his coverage. By doing this, even if he decides to leave his job in the future, he will already have a good amount of life insurance in place.
In summary, group life insurance is a convenient and affordable way for young physicians to secure life insurance coverage through their employer or professional organization. While it offers several positive features, it is essential to understand its limitations and consider supplementing it with individual term life insurance to ensure your loved ones are fully protected.
Panoramic Financial helps new attending physicians make sure that they have proper life insurance coverage in place. Please click “Work With Us” at the top of the page to learn more.
The foregoing content reflects the opinions of Panoramic Financial and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Panoramic Financial does not give tax or legal advice. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.