- The Washington Times - Tuesday, June 21, 2005

Q: My company offers supplemental life insurance. Should I sign up for it or am I better off shopping for my own term-life policy?

A: The answer depends a lot on your age, health and family situation.

Since employer-sponsored health insurance is almost always a better deal than buying an individual policy on your own, there’s a popular misconception that the same holds true for life insurance.

However, unlike medical insurance, employers do not usually contribute money to defray the cost of supplemental life premiums, though many provide bare-bones coverage — seldom more than one year’s salary — that typically is provided to employees for free.

Supplemental life is usually easier to get because you typically don’t need to pass a physical exam. But there is a drawback to the convenience: You are paying a premium based on the health risks of the entire work force of your company, rather than premiums based on your personal health status. So if you are a young, healthy nonsmoker, chances are you may be paying too much.

Many healthy people with supplemental life insurance don’t realize they are helping to pay premiums of overweight, chain-smoking co-workers, according to Patty Reiners, an assistant vice president at insurer Ameritas Direct.

“Individual coverage for those nonsmokers with good habits and above-average health can cost considerably less than group coverage, sometimes as much as 50 percent less,” she said.

On the other hand, if you are getting older and experiencing health problems — or have dangerous hobbies like skydiving or scuba diving — supplemental life insurance might be your best or only option.

Ultimately, the choice is simple: Shop around and determine which policy is cheaper for equivalent amounts of coverage.

“The vast majority of individuals can qualify to purchase insurance well into their 70s. So again, the bottom line of deciding between supplemental and private insurance options comes down to price, price, price,” said Robert W. MacDonald, a retired insurance executive and author of the life insurance book “Control Your Future: How to Profit From the Financial Services Revolution.”

But another big issue to consider is whether the supplemental life coverage is “portable,” meaning you can take it with you if you leave your job.

Often, when a group supplemental life insurance policy is converted to an individual policy when an employee leaves a company, the cost goes up and the new policy might not be as good of a product as you could get elsewhere, said Elizabeth Sevilla, a personal financial planner specializing in life insurance at BDO Seidman LLP in San Francisco.

It also helps to assess how much life insurance you need before you sit down to decide which type to get, experts said.

If you are single and have no dependents, your employer’s basic death benefit may be more than enough.

But if you have a family and want to make sure your survivors can afford to do things like pay off a mortgage, send your children to college and maintain their current lifestyle, supplemental may not be enough because these plans often are capped at three to five times your annual salary.

“Industry experts typically recommend much more,” said Jeff Nordstrom, life insurance product manager at San Antonio-based financial services company USAA. “Depending on the person’s age, an individual may need up to 15 times their income in life insurance and possibly more.”

According to M. Nasim Ali, a Chicago-based executive vice president at SBLI USA Mutual Life Insurance Company Inc., you should add up all of your family’s current and future obligations — mortgage balances, other debt, future education expenses, funeral costs, income replacement and living expenses — and then subtract their assets. The remainder is a good starting point to figure out how much insurance you need.

A calculator on the Web site of the Life and Health Insurance Foundation for Education also can help you figure out how much you need.


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