It has become pretty common in the California health insurance market to also add a limited suite of term life insurance products along with the main health benefit. This is true for both Small Group (2-50 employees) and individual/family coverage.
It typically has the feel of dental insurance in that it is treated as a "rider" to the main health insurance.
Let's take a look at the pro's and con's of this approach to what is a very important part of your insurance planning.
First, a quick definition of term life insurance
There are two main types of life insurance on the market: term and whole life. Term is the simpler of the two in that you pay premium for a given period of time of coverage which pays out a fixed amount to beneficiaries if a person passes away. There's a whole separate market for life insurance so we won't delve too deeply into the various options and twists.
Most of the life insurance offered as part of health plan options is term by nature so we'll concentrate on that. Keep in mind that on the group market, there are many options that are marketed and sold directly to companies from traditional life insurance carriers. The plans we are discussing are those offered by health insurance carriers as an add-on benefit to the core medical plan.
Since you can buy term life through your health plan or stand-alone from a life insurance carrier, which is the best approach?
There are a few
distinctions between
purchasing term life from
health carriers versus life
carriers.
When you purchase life insurance as part of your California health plan, the amounts are typically limited both in flexibility and maximum amounts. For example, the allotted amounts for individual/family health plans might be $10K, $25K, $50K, and $100K.
This is considered a fairly low amount for life insurance. If purchased directly from a life insurance carrier, the amounts are more flexible with price points at $250K, $500, $1 million and so on.
Based on your life
insurance needs, term life
offered through the health
plans might not be adequate.
It's more of a quick and
easy fix which leads us to
the other big differences.
A physical including blood work is typically needed when purchasing life insurance direct. The medical questionnaire is much more involved as well. Additional medical information is usually not needed when purchasing through a health plan. The carrier may underwrite differently between the life and the medical insurance which means you may qualify for one but not the other.
A physical is generally
not needed as part of the
underwriting process.
California life insurance purchased
directly through the life
carrier tends to be less
expensive in premium per
dollar of coverage. Part of
this is just that they are
offering larger amounts and
economies of scale come into
play but the more thorough
medical underwriting is also
a factor.
Also, when purchasing directly through the life carrier, you typically lock in your rate based on the age at the time you purchased the coverage where health plan life insurance can up as you reach the next age band.
Essentially, you are paying for the convenience of one process (both medical and life) which is simplified but for lower amounts of protection.
With Small Group options, there are a few differences of importance.
First, there is typically a larger range of life insurance in California amounts that you can choose from. The range usually goes up higher as well. Group life insurance may be guaranteed issue depending on the carrier which means that if a certain percentage of employees participate, individual employees cannot be declined for health issues.
There are typically
options to add different
levels of coverage based on
criteria such as managment,
full time/part-time, etc.
Ultimately, the primary deciding factor is a comparison between cost (per dollar of coverage) versus convenience when looking at term life through a health carrier or direct through a life insurance carrier.
Call us at 800-320-6269 with any questions. Our services are free to you as licensed health agents.