Many professionals rely on group term-life coverage provided by their employers. Term insurance, which is the simplest and least expensive kind, pays a set amount to your beneficiaries if you die in the period covered by the policy. But while free, company-provided coverage may increase with your salary, it often isn't enough, and supplemental insurance through employer group policies, although convenient to purchase, may not be the most economical way to go. The good news is that individual term-life policies have gotten cheaper and easier to buy, thanks to increased competition and the Internet.
Before you begin shopping for term-life insurance, evaluate how much you need. If you're healthy, unmarried, and without dependents, you can probably forgo life insurance and stick to buying disability coverage. But if you have dependents, the rule of thumb is you need to be covered for five to seven times your annual income. Of course, a lot depends on how much you have socked away in investments, retirement plans, and college savings plans as well as the size of your estate and debt. All this can quickly get complex, and you may want to check with a financial planner. But, as a first step, you can evaluate your needs using online calculators offered by insurers or at independent sites. For an especially easy one to use, check www.life-line.org (table).SALES PITCH. With an idea of how much coverage to go for, you can sort through your options. Going with your company's group policy may be tempting: You can usually increase the amount without having to qualify for a new policy. But the premiums rise every year, and your costs are assessed as part of a pool that includes smokers and people with various illnesses. As a result, you'll likely get charged more than if you buy as an individual from an independent insurance provider. This is particularly true if you're young, healthy, and female. (Women tend to live longer than men, so their rates are lower).
Free employer-provided life insurance isn't entirely free because employees pay an imputed tax, deducted from their paycheck, on any amount over $50,000. The tax per $1,000 of coverage per month runs from 5 cents to $2.06, depending on your age. One other hitch: The coverage may not be portable; leave your job, and you usually leave your insurance behind. When policies can be converted, costs are high and terms aren't favorable. But there are times when a supplemental group life policy may be a good idea--if, say, you have an illness, or fly planes as a hobby. In these cases, the coverage actually may be cheaper, and some companies let you add to your coverage up to a set level without a medical exam.
Barring such circumstances, the best way to get adequate insurance is to take the free policy your company offers--which probably covers one to two times your annual salary--and then shop around for individual term-life insurance. Sites such as www.quickquote.com, quotesmith.com, or masterquote.com are good pricing sources. But online rates aren't guaranteed; they could change depending on your medical exam results.
You do have the choice of completing the transaction online (with final approval depending on your medical exam) or going to an insurance agent for the final purchase. The latter route won't add to your costs, but you may have to endure sales pitches for costlier coverage, such as cash-value insurance, which combines term-life with an investment account.
We tried out the sites to find how much a healthy, 45-year-old, nonsmoking male would have to pay for term-life coverage. Ideally, he should have $1 million in coverage for 15 years if he has a working spouse, two young children, and an annual income of between $150,000 and $200,000. Masterquote.com turned up the cheapest price from an A+ rated company--$88 a month, or $1,050 a year for 15 years, from Protective Life & Annuity Insurance. Guardian Life, by contrast, charges $158 a month, or $1,900 a year.
It's crucial that the insurer you pick has a high rating for financial stability from such rating agencies as Standard & Poor's, A.M. Best, Duff & Phelps, Moody's, and Weiss Group. Consider only insurers with ratings of A+ or higher, says Veena Kutler, a financial analyst at Chevy Chase (Md.)-based Mosaic Investment Solutions. After you have the policy, continue to check your insurer's rating annually with at least two agencies. If its rating declines, you may want to consider switching. It pays to cover all the bases. By Pallavi Gogoi