- Difference between individual and group life insurance
- June 5, 2013
Something can be said for following the crowd, at least when it comes to group life insurance. But if you’re young and healthy, you may find that the cost of an individual life insurance plan can be far more affordable than an insurance plan provided by your employer.
“Group life can cost a great deal more than an individual life insurance policy because individual policies are medically underwritten and the insurance company knows the health of the potential policyholder,”said Brent Fritz, Chief Actuary for the Individual Life Division of Principal Financial Group. “Whereas with a group policy, you are estimating an average or paying for the average life expectancy of everybody in the group. An underwriter can give you a better rate because they know that you’re healthy and you would not be subsidizing the unhealthy members of the group.”
The American Council of Life Insurers (ACLI) reported that Individual life insurance was one of the most common forms of life insurance purchased in 2007, making up 52 percent of the entire insurance marketplace in the U.S., while group life represented 48 percent of the insurance marketplace.
While individual life insurance is a policy you buy on your own, group life insurance is a policy that you buy through an employer. Since group insurers spread the risk among groups of people, if you have a pre-existing medical condition that might otherwise force you to pay a higher rate or be denied coverage in the individual market, this may be the only option for you. Other examples of organizations offering group life insurance include members of a union or a professional trade group. In 2007, group insurance was responsible for 9.2 trillion dollars in coverage, a three percent increase from the year before, according to estimates from ACLI.
According to a March 2009 National Compensation Survey by the Bureau of Labor Statistics, when an employer offers group life insurance, at least 96 to 97 percent of workers enroll in the group plan. Unlike individual life insurance, group life insurance is a “guaranteed issue” policy, which means that medical examinations are not required to get coverage.
When it comes to setting the rate for an individual policy, underwriters consider age, height, weight, current health, medical and family history, occupation and hobbies in order to set the premiums. Once the policy goes through the underwriting process, the price is then subject to your predicted life expectancy, the face amount, and the number of years the policy will be in force, explains Tony Franks, a financial planner for MetLife.Pages: 1 2
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