2 other ways to get coverage
- Through your employer if they offer a group insurance plan
- By buying creditor insurance when you apply for a loan, mortgage, line-of-credit or credit card
1. Employer life, disability and health insurance
You or your spouse may have group insurance coverage through an employer that includes life, disability and health insurance. Learn what your coverage provides and consider the following before you buy:
- Disability insurance – Group disability plans can be restrictive. You may want to supplement your group coverage with an individual disability policy that tops up any coverage you receive from your group plan or provides the coverage you need if the definition of disability is too limited.
- Life insurance – Life insurance coverage under a group plan is often only equal to your current salary. If this amount is too low for what you need, consider buying optional coverage through your group plan or buying individual coverage.
- Coverage stops when you leave your employer – Having individual coverage ensures you always have some coverage in place. While your work plan may let you transfer some group coverage to an individual policy without a medical exam, this is usually more expensive than qualifying for coverage on your own.
2. Creditor insurance
Creditor life insurance provides a death benefit to cover repayment of a specific debt like a mortgage, line of credit, personal loan or credit card balance. If you or your spouse dies, the insurance pays off the total balance.
Some creditor insurance also makes monthly payments for you if you become disabled, lose your job, or get a critical illness like cancer, heart attack or stroke.
Creditor insurance for major debts is better than no insurance at all. But, in general, buying individual personal insurance to cover your debts will provide you with far greater flexibility and financial security.
- Convenient – You sign for it when you take out your mortgage or other loan. And your premium is included in your mortgage or loan payment, so payments are automatic.
- Can be easy to qualify – If you have no health problems, you simply answer a few questions.
- Can be inexpensive – Premiums are often lower than for other forms of life insurance because it’s based on a group rate. But if you’re a non-smoker in good health, you may get a cheaper rate on your own.
- Lender gets the death benefit – The death benefit goes to the lender and the insurance only covers the debt. It doesn’t give your family any other options for using the money.
- Benefit decreases over time – The benefit amount drops as the mortgage or loan is repaid. You pay the same amount each month for less coverage over time.
- Coverage has an end date – Your coverage ends when you pay back the debt. If the insurance is to cover a mortgage, coverage also ends if you sell the house or refinance.
Choose individual personal insurance coverage over creditor insurance if you can. The disadvantages of creditor insurance often outweigh the advantages.
Group insurance may not provide the protection you need. Check your workplace coverage carefully and consider supplementing it with an individual policy.