Are Supplemental Group Insurance "Buy-Ups" Actually Cheap or Expensive?

Supplemental group insurance can be a great way to add an extra layer of security in your life. However, like any form of insurance, you will need to weigh the costs and benefits of adding to your existing plans. This begs the question: is supplemental group insurance the right option for you? While there is no one-size-fits-all answer, there are a few things you should consider before making any decisions.

But how does supplemental group insurance work? How can you determine if it is the right choice for you? And are supplemental group insurance “buy-ups” actually cheap, or are they expensive? We will answer all of these questions and more, but first let’s define supplemental group insurance and see how it can be used to bolster an existing insurance plan.

What is Supplemental Group Insurance?

In essence, supplemental group insurance is insurance offered through your employer that provides additional coverage to an existing plan. You can acquire supplemental group insurance for life, disability, and even long-term care insurance. Many people choose to go with supplemental group insurance because, at first glance, it can appear cheaper than other options.

What are the Costs of Supplemental Group Insurance?

The idea of using bi-weekly (or monthly) payroll deductions to purchase insurance can seem very cost effective, almost like a company paid benefit. However, in most cases, your company is not paying for, or even contributing to your supplemental group insurance.

While the group rates may seem like a good idea, there’s a catch: they don’t account for your age or the current state of your health! Age and certain health conditions can raise your premiums and essentially negate any savings. Additionally, it is important to note that the cost of insurance per dollar of coverage is actually cheaper to buy on the individual market healthy people.

Group insurance is "guaranteed issue," so when an insurer makes it available to an entire company, they are pricing risk across an entire pool of certificate holders, without first examining for health issues. This typically averages out to a "standard" health rating. In the risk pool, applicants with cancer history, obesity, and other health ailments receive the exact same rate as marathon runners with no prior health issues.

Obviously, the carrier offering group coverage employs actuaries who have to account for this problem.

There are other benefits to owning coverage individually as well. First of all, if you are terminated or choose to leave your company, that coverage can come with you because you own it. Secondly, your own policy may be convertible to other types of permanent coverage down the road.

Health changes over time, estate planning considerations, or other life changes might necessitate the need for some permanent coverage at some point. By owning individual insurance, you can lock in your ability, in many cases, to convert this coverage if you experience any of those changes.

Are you looking for a financial plan that fits your circumstances and maximizes long-term benefits? Consult the experts at Afton Advisors today for more information!