Group or individual life insurance: What’s the difference?
Got a new job or thinking about going freelance or retiring? Changes like these can raise a lot of questions. Read on to learn more about the ins and outs of individual and group life insurance.
Do I have to join my employer’s group life insurance?
Yes! Life insurance is part of the group insurance plan and is usually mandatory. It’s a temporary solution, which means it’s valid for as long as you’re employed by the same company. Employees must sign up for basic life insurance, which is generally equivalent to one or two times their salary. Some policies give dependents the option of purchasing life insurance. Keep in mind that in most cases, no medical examination is required to qualify.
Is the amount of coverage under my group life insurance enough?
Let’s look at how it all breaks down for Lucie. When she joins her group life insurance, the amount of coverage is equal to one time her annual salary. That means if she earns $60,000 a year, the coverage equals $60,000.
Based on your own personal situation, you need to decide whether this would be enough to cover your various expenses and financial obligations. For example, if you were to die, would this amount be enough for your spouse and children to stay in the family home, pay off all your debts, cover the period when your children are financially dependent (e.g., vacation expenses, summer camps, RESPs), or cover annual cost of living increases?
If the answer is no, you have two options to close the gap and get the amount of life insurance you need: bumping up your group life insurance or supplementing your group life insurance with an individual life insurance policy.
For the first option, each level of additional coverage is equal to the value of the basic coverage, so you can double or triple this amount. As a rule of thumb, you cannot take out more than two additional levels of coverage.
In addition, the cost of the premium for the basic (mandatory) level of coverage is set based on the age and characteristics of all group plan members. However, if you opt for additional coverage, the premiums for these extra levels of coverage will be calculated based on your age and state of health.
In the second option, you can supplement your group life insurance by taking out individual insurance. The main advantage of this option is that you won’t risk losing your coverage if you change jobs or retire.
In summary, if you think the amount of coverage in your group life insurance isn’t enough, you need to compare the cost of bumping up your current group insurance coverage with the cost of supplementing your group insurance with an individual life insurance plan.
What happens if I lose my job, change jobs, or retire?
Your employer-provided group life insurance is guaranteed for as long as you’re employed by the company. If you decide to change jobs, are laid off, or retire, you could lose this coverage. What do I do in these situations? You may be able to convert your group insurance or take out individual life insurance.
A conversion privilege allows you to convert your group life insurance into individual life insurance. You don’t have to provide any health information to qualify for this conversion. Your new premium will be calculated based solely on your age.
As a self-employed worker, what are my options?
According to Institut de la statistique du Québec, 11,4% of Quebecers were self-employed in 2022. Leaving your job to go freelance? Remember that your group insurance won’t go with you. You’ll need to consider individual life insurance. To get an individual life insurance policy, you will have to provide information on your state of health, and the premiums will be set based on your situation. You’ll also need to take other factors into account when you’re self-employed. For instance, do you use your car for work? Be sure to notify your insurer so they can adjust your auto insurance coverage. Insurance against property damage is one thing, but health problems can also have an impact on your new situation. So it’s a good idea to supplement your individual life insurance with a health and disability insurance policy.
If you want more food for thought about life insurance, here are some articles you might find helpful:
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