Life is unpredictable and full of uncertainties. You never know what might happen to you or your loved ones in the future. That is why having a financial backup plan that can protect your family in case of your untimely demise is essential. Buying a term insurance plan is one of the most popular and affordable ways to secure your family’s future.
Many people think they do not need to buy a term plan if they already have an employer-sponsored plan, such as group life insurance or pension. They believe that their employer’s plan is sufficient to cover their family’s needs in case of their death. However, this may only be true in some cases. Here are some reasons to consider buying a term plan even if you have an employer’s plan.
What is Group Life Insurance?
Group life insurance is a type of insurance that covers a group of people, usually employees of the same company or members of the same organization. The employer or the organization owns the policy and pays the premium, while the employees or members are the beneficiaries. Group life insurance provides financial protection to the families of the insured in case of their death. They are usually cheaper and easier to obtain than individual life insurance. This is because they do not require medical exams or underwriting.
Limitations of Group Life Insurance
Group life plans have multiple downsides when compared to individual term plans. Here are some:
1. Employer’s Plan May Not Provide Adequate Coverage
One of the significant limitations of depending solely on your employer’s plan is that it may not provide adequate coverage for your family’s needs. Typically, an employer-sponsored plan offers a sum assured equal to a multiple of your annual salary, such as 2x, 3x, or 4x. However, this may not be enough to cover your family’s expenses, such as household bills, children’s education, loan repayments, and future goals.
Moreover, your employer’s plan may not consider the inflation factor, which erodes the value of money over time. For example, if your employer’s plan offers a sum assured of Rs 50 lakhs today, it may not be worth the same after 10 or 20 years, when the cost of living would have increased significantly. Therefore, you may need to buy a term plan that offers a higher sum assured that can keep pace with inflation and maintain your family’s standard of living.
2. Employer’s Plan May Not Be Portable
Another disadvantage is that they may not be portable. That means if you change your job or retire from your current organization, you may lose the benefits of your employer’s plan. You may be unable to continue the same plan with your new employer or after retirement. This can leave you and your family vulnerable in case of any unforeseen event.
Therefore, buying a term plan that is independent of your employment status and can provide you with lifelong protection is advisable. You can go for a term plan that offers a long policy term, such as up to 75 or more years of age, and pay the premiums regularly to keep the policy active. This way, you can ensure that your family will receive the sum assured even if you are not working or retired.
3. Employer’s Plan May Not Offer Customisation
A third limitation of relying only on your employer’s plan is that it may not offer customization options to meet your personalized needs and choices. For instance, your employer’s plan may not allow you to choose the payout option, rider benefits, premium payment mode, or your desired policy term. You may have to accept the terms and conditions set by your employer and the insurance company.
However, if you buy a term plan on your own, you can customize it according to your requirements and goals after utilizing the term plan calculator. Term insurance calculators can serve as a starting point to help you make more informed decisions about your term insurance needs. For example, you can opt for an increasing sum assured option that increases the coverage every year by a certain percentage to counter inflation. You can also add riders such as critical illness cover, accidental death benefit, or waiver of premium benefit to enhance your protection.
To conclude, buying a term plan, even if you have an employer’s plan, is a smart move that can provide you with additional security and peace of mind. A term plan can offer you more coverage, portability, and customization than an employer-sponsored plan and can ensure that your family is well taken care of in case of any unfortunate event. You can compare different term plans online and choose the one that fits your budget and needs.