Term Life Insurance Blog

Why Term Life Insurance from Employer May Not Be The Cheapest

WSJ's columnist Diana Ransom discussed the same thing I recognized a few years ago: for employees young and healthy, buying term life insurance from employee-sponsored plans may not be the most economical way to get coverage.

A key factor to check is whether your company's plan charges the same premiums for all workers or whether the premiums are "age-graded." In the latter design, which is more common, there's one charge for all workers in a particular age bracket -- say, between 35 and 44 -- with lower premiums for younger age brackets and higher premiums for older age brackets.

If there's a single charge for everyone, that coverage may be relatively inexpensive for the older workers but far more expensive than other policies in the marketplace for younger workers. (Life insurance is usually more expensive for older buyers because their risk of death is greater.) That's less of an issue with age-graded plans.

Another big consideration is your health. If you aren't in great health, individually purchased life insurance could be more expensive than the option at work, or even unavailable. If your health is impaired and you are an older worker in a plan that isn't age-graded, that group plan may be particularly compelling.

But if you're healthy, "you may be paying more by participating in the group coverage," says Brendan J. O'Keefe, an accountant and financial adviser in Orleans, Mass. To buy an individual policy, you must typically supply your medical history and pass a medical exam.

Finally, coverage you buy at work typically isn't "portable" if you change jobs. "If you leave your job, you've [generally] left the life insurance too," says Kenneth Jarvis, an accountant in Sarasota, Fla.