Many Canadian employers offer group life insurance to their employees at low or no cost. There's no reason not to sign up for such a plan if you have access to it.
However, relying solely on this basic coverage alone may not the enough. The death benefit is usually no more than two or three times your annual salary. If you have a family and do not buy supplemental insurance, your death may leave them financially vulnerable.
So, how can you supplement your group life insurance plan to ensure your loved ones are adequately protected?
Optional life insurance can be the answer. It is usually cheaper and easier to get than an individual life insurance plan. Let's cover the details.
Coverage and Eligibility
Optional life insurance supplements the base life insurance offered by your group benefits plan. The maximum amount of extra coverage available varies by insurer, but you can normally get up to $500,000 in additional life insurance coverage for yourself and your spouse. Generally, optional life insurance also covers eligible dependent children. However, the maximum amount available for minor dependents is considerably less.
So, who qualifies for optional life insurance? And is there a medical exam involved?
Each optional life insurance contract is different. Some insurers may offer all the group life insurance participants the option to buy additional coverage. Others may offer optional life insurance to only certain types of employees (for instance, permanent employees or managers).
Unlike basic group life insurance, optional life insurance typically requires a medical assessment. In some situations, an employee may be allowed to purchase additional coverage without having to prove insurability if they do so within 30 or 31 days of becoming eligible.
You will pay for the full cost of optional life insurance. At the start of each month, your employer will deduct the monthly premium amount from your salary. Optional life insurance rates are not guaranteed. They may increase every year or once every 5 years.
How much optional life insurance coverage costs you depends on several factors, including:
1. Age – Age is a main factor that life insurance companies consider when calculating your monthly rate. The older you are, the higher the premium amount will be. This is because every birthday puts you one year closer to your life expectancy.
2. Health – Insurers reward healthy applicants with lower rates. In contrast, a severe underlying condition or multiple minor illnesses can cause your premium rate to go up.
3. Gender – Women often pay less than men for life insurance since they tend to live longer.
4. Smoking – If you smoke, brace yourself for higher premiums because on average life expectancy for smokers is shorter than for non-smokers.
5. Policy type - Life insurance policies are classified into two types: term life insurance and permanent life insurance. The former provides coverage for a set length of time, whereas the latter provides lifetime coverage as well as a tax-advantaged savings account. However, permanent life insurance can be five to fifteen times more expensive than term life insurance. If you have a group permanent life policy, the optional coverage will cost substantially more than if you had a group term life policy.
6. Policy amount – The higher the optional coverage amount, the higher the monthly premium will be.
A life insurance beneficiary is a person or corporation that receives the proceeds of your insurance policy in the event of your death. The majority of people pick their spouse, children, or another family member as beneficiaries, but you can name anyone, including a charitable organization or a pet.
It is important to name at least one beneficiary for your optional life insurance because otherwise the insurance proceeds will be paid to your estate. However, ideally you should name a contingent beneficiary in addition to a primary beneficiary. The former gets the payout if the latter predeceases you or is untraceable. You may update the beneficiary designation at any time you want.
Is Optional Life Insurance Worth It?
Group life insurance is a common employee benefit that provides financial assistance to the deceased employee’s family. The employer may or may not pay for the entire cost of the group policy. Even if you have to pay some part of the monthly premium out of pocket, signing up for group life insurance is a no-brainer. It is considerably cheaper than a comparable individual life insurance policy.
Group life insurance, however, has one drawback: The coverage amount is rather small — typically not more than twice the employee’s salary. If you have a family and a mortgage, basic group life insurance could leave you underinsured. This is where optional life insurance can come in. It provides you with as much additional protection you need to secure your family’s future.
Optional life insurance can provide:
- Income to help your family live comfortably
- Money for your children’s college education
- Money to cover your end-of-life expenses
- A non-taxable charitable cash gift
- A non-taxable cash gift to a loved one
Some of the main benefits of having an optional life insurance are:
- You can choose the amount of coverage you need to meet all your financial obligations. While optional life insurance coverage is usually capped, the maximum amount you can buy is generally several times more than the policy’s base amount. Most providers let you purchase up to $500,000 or more.
- You may be able to get coverage without taking a medical exam. Some insurers offer this option provided you sign up within a certain period — usually 30 or 31 days after enrolling to the basic group life plan.
- You can take it with you when you switch jobs. If you lose or leave your job and transfer the coverage to an individual policy, you will get to keep it with no medical questions asked.
The bottom-line is that optional life insurance offers many advantages and may be worth the cost for someone who has dependents or a lot of financial obligations.
If you're looking for additional insurance coverage for your family, feel free to reach out to a Dundas Life licensed advisor today. We'll go over your options and find the most cost-effective option for you.
Frequently Asked Questions
When does my coverage end?
Optional life insurance coverage typically remains in force until your 65th birthday, provided the required premiums are paid. However, since each plan has its own terms and conditions, read the policy contract document to find out when your coverage ends.
What happens if I leave my present employer?
Most optional life insurance policies (if not all) allow employees to take their coverage with them as long as they convert it into an individual life insurance plan if they switch jobs. However, the conversion option is available only for a limited period — typically 31 days — after you leave the current employer. No additional medical information is required.
How do I update my status as a smoker or non-smoker?
Premiums for smokers are much higher than for non-smokers. If you have quit smoking, then at the end of year one you can change your status to non-smoker by contacting the insurer. Doing so will result in lower premiums down the road, provided you continue to stay off cigarettes.