Why employer-provided life insurance can backfire

Personal Finance

Term life insurance is much less expensive than that other breed of coverage: permanent life insurance, which comes in a variety of flavors such as whole life and universal life.

As its name implies, there is no end date on a permanent policy. The added cost is in part to pay for an investment component that is more expensive than if you invested in low-cost index funds and exchange-traded funds on your own. The higher premiums on permanent policies can make them a favorite of insurance agents working on commission.

Rose said he recently worked with a 28-year-old new parent who was being sold a whole life policy with a $200,000 death benefit that was going to cost around $250 a month. Rose instead suggested a 25-year term life insurance policy with a $500,000 death benefit. The monthly premium: $50. You can get personalized estimates at at term4sale.com.

“Most people are surprised at how inexpensive term life insurance is,” said Rose.

(Tip: Even if you are a workout maniac, don’t assume your health is “Preferred Plus/Exceptional. Just 10 percent or so of applicants fall into this tier that offers the lowest premiums.)

When you purchase your own policy, you don’t have to worry about the fact that when you leave a job, your free group life insurance coverage is cut off. If your next job doesn’t offer the benefit and your health status makes it harder for you to qualify for an individual policy, you’ve got yourself into a financial pickle.

“Buy your own coverage and you can change your job 27 times in the next 30 years and not have to worry about life insurance,” Rose said.

And it’s easy to avoid a face-to-face with potentially hard-sell agents. Websites such as Accuquote, PolicyGenius and Quotacy deliver online term life insurance quotes — they shop a variety of insurers — and you can apply online.

Depending on the amount of insurance you’re applying for, the insurer may send a medical technician for an in-home/at work mini-physical, on the insurer’s dime. That’s a small hassle for being able to tick off a major financial to-do, with a premium that likely will run you less than the monthly tab for your cell service.

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