One of the most consistent questions I get from clients is the following:
“I have Life insurance through work, so why would I need more?”
For starters, I love that most Canadian companies these days have some Life Insurance built into their benefits packages. Many people do not think about attaining coverage independently, and work coverage partially addresses this societal blind spot.
Group Coverage
Insurance through work is typically classified as group coverage. This means that you are insurable by virtue of being part of a group – in this case, an employee of your organization.
The group coverage is negotiated while keeping in mind the profile of the typical group member, while accounting for extremes on the spectrum. The insurance company needs to cover their risks, and thus puts some restrictions on what is available to members of the group.
Amount:
The first and biggest restriction is the amount of coverage you can obtain. The typical coverage amount is equal to somewhere between one and two times your annual salary. For an employee making $100k a year, this will yield somewhere between $100k and $200k of coverage. While this is no small sum, it can leave a large gap in the income that will need to be replaced over 20+ years should you pass away prematurely.
Some companies and plans allow you to increase the amount of coverage you get through work. Because the insurance company has to insure anyone in the group, they set a limit as to how much coverage one can get. This means that the maximum coverage you might be able to get through your employer might not meet your needs.
Baked in Costs
“It’s free” tends to be the biggest myth around work insurance. It is included in your benefits package, but if you take a look at your pay stub – you’ll likely see the premium is being withdrawn as a deduction every two weeks. That being said, many companies don’t allow you to opt out of this coverage. So you might be locked in whether you want it or not.
Higher Premiums
Because group insurance averages the health profile of all the members of the group. It means that some people will be paying more than they ought to, while some will be paying less. if you are young and or healthy, there is a strong probability that you are paying more through work than you would through a private contract.
It can change
A quality of group benefits that is often overlooked is that the contracts are modifiable. In certain circumstances, the cost of insurance changes as the mortality and morbidity profile of the insured population changes. This means that you may be paying more for next year than you are paying now and you do not have control over how or when those adjustments are made. A famous instance of this happened with the Ontario Medical Association in 2021.
Private Insurance on the other hand, is locked in. When you sign a contract with an insurance company, that deal remains in place for as long as you continue to pay the premiums.
Portability
The greatest risk of relying on insurance through work is the fact that the coverage is likely not portable. Essentially, if you stop working for your employer for any reason, the life insurance coverage will cease to be in place. While you may be able to purchase private insurance afterwards, there is no guarantee that your health risk profile will be the same as it is today. This is a significant feature that usually drives the recommendation to go with private insurance.
Conclusion
While we at Citron insurance love that many Canadians are protected through their workplace, we do see many young Canadians over exposing themselves to risk by relying solely on insurance through work. In many cases, Private Insurance is the right choice. Some clients will also rely on a hybrid model, some coverage through work, and some through private.
Each person is unique, and no two workplaces have the exact same breakdown. It’s important to get an understanding of each person’s needs and find the best solution for their situation. At the end of the day, we caution you to never making any assumptions about your coverage. And keep in mind, there is never a downside to thoroughly understanding your options. Finally, remember that you can always reach out to your HR or Finance teams to get more information on the plan you have in place.
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