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Tuesday, October 16, 2012

Life Insurance While In Transition

One of the most responsible things the family's breadwinner can do is to protect his or her family through life insurance.  Its easy while you work for a company who offers life insurance; it usually is 100% company-paid and automatic when you come on the payroll.  It is also easy when you leave one job and start another as the successor insurance usually becomes effective before the old insurance expires.  But what about when you are in transition, and especially if you are trying to preserve cash?  Here's what I've learned.

When you leave your job for whatever reason you have the opportunity to "port" your life insurance, that is to pay age-rated premiums and convert your group coverage to a personal policy.  You usually have 30 days to do that and your HR or Benefits department can provide you with the paperwork, or you can call the life insurance carrier yourself.  If you die during the 30 day "conversion period" after your termination date then your life claim would be paid as if you were still employed.

What I found problematic at my age and salary level was cost and frequency of payments.  Two times my salary at age 52, and being required to pay the first quarter's premiums up front, was going to be almost $700.  Because of that I began to look for options.

I approached my local insurance agent, and the best I could get was $167/month for ten years of term coverage.  The policy would go into effect when I paid my premiums but there was a catch.  Anytime during the first month the underwriters could decide not to take the coverage, refund my premium, and decide not to pay a claim.

In the interest of time and expense I began to look on-line.  I found an interesting option with Accidental Death and Dismemberment (AD&D) coverage with Mutual of Omaha that would be only $12.50/month for $500,000 in coverage.  This was a really good cost-effective option should I die in some accident.  Then I remembered that we had an executive die on the basketball court of an unknown heart ailment, and realized that my family would be left with no coverage in such a health-related death scenario.  Thus I kept looking.

I finally came across a number of Internet-based insurance brokers offering the same coverage in the $60 - $70/month range.  One of them offered to give me his Tennessee insurance brokers license number and a couple of days to check him out with the Tennessee Insurance Commission.  I purchased a ten-year term policy with the benefit level I needed and immediate coverage for $61.50/month payable monthly by direct draft.

So now I have affordable coverage and the family is protected until I get my next job.  The premiums I would have paid to port my former employer's coverage for three months will pay for this coverage for 10 months, and I don't have all that cash out the door immediately.

The moral of the story is this; it pays to look around, reputable web-based brokers will give you the information necessary to check them out, and you can protect your family and your severance cash at the same time.

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