Should You Get Insurance on Your Own or Through Work?

Should You Get Insurance on Your Own or Through Work

Last week we talked about the 4 types of insurance all new parents should have, which may have put some work on your plate to get that insurance in place!

When you go looking for insurance, you’ll find that there are two main ways to get it:

  1. Through your employer
  2. On your own

There are pros and cons to each and in this post we’ll walk through them so that you can get your family the right kind of protection.

Sometimes you don’t have a choice

There are some cases where you may not have a choice about where your insurance comes from.

If your employer offers health insurance, then those are for the most part the only options you will have. The one thing you can do if you’re married is check out the options your spouse has through his or her job. You should be able to hop on either spouse’s plan, though you may have to wait until the next open enrollment.

If you don’t have employer health insurance, then you’ll be left to find it on your own. My first recommendation would be to check out this post: 5 Steps to Take If You’re Losing Health Insurance. But in most cases the new insurance exchanges will likely be your best bet for finding health insurance on your own.

You also likely won’t have a choice for liability insurance, simply because it probably won’t be offered through work. So you will have to get that through on your own through your auto and homeowners policies, and potentially an umbrella policy on top of that.

So with all of that said, the major types of insurance where you will be making this work vs. on your own decision are life and long-term disability insurance.

Advantages of getting insurance through work

The big advantage of getting life or disability insurance through work is that it’s easy to do. If your employer offers the coverage it’s usually as simple as checking the “yes” box during open enrollment and you’re signed up. Easy!

This can be a great way to get at least some amount of guaranteed insurance, and for people with medical issues it may be the only way to get affordable coverage, or possibly the only way to get coverage at all. Group insurance typically doesn’t require a medical exam, while any insurance you get on your own will. That can be a huge advantage for some people.

Finally, group insurance may be cheaper than individual coverage, at least to start. It’s worth noting though that for life insurance especially, it may start to be more expensive than individual coverage once you reach your 40s, if you are in good health.

Disadvantages of getting insurance through work

There are two big disadvantages to the group insurance offered through work, and both are pretty significant.

First, there will likely be a limit on the amount of insurance you can actually get. This limit may or may not be enough to meet your family’s actual needs. (Here’s a tool to help you figure out how much life insurance you need.)

Second, any insurance you get through your job will only provide coverage for as long as your employer continues to offer the coverage AND you continue to work there. As soon as either of those things change, your coverage may end and your family may no longer have the protection it needs.

Advantages of getting insurance on your own

The two biggest advantages of getting insurance on your own are directly related to the two biggest disadvantages of getting it through work.

First, you can get as much coverage as you need. There’s no employer limiting you. So even if your employer offers some amount of insurance, it may be necessary to find some individual coverage on top of that to make sure that your family is fully protected.

Second, the insurance is yours as long as you continue to pay the premiums. You can change jobs, change states, or really whatever you want. No one can take it away from you as long as you pay on time.

You also have more freedom to find the best policy for your specific situation. This is especially important with disability insurance, where both the definition of disability and exclusions for certain conditions can really affect the quality of the insurance.

Finally, any disability benefits paid out on an individual policy would be tax-free, while any benefits paid out from an employer policy would likely be taxed. So with an individual policy, it’s likely that your benefit would actually be worth more money.

Disadvantages of getting insurance on your own

One big disadvantage of getting insurance on your own is that it can cost more, sometimes a lot more. That’s generally because the insurance coverage is actually better, but it can still be a tough pill to swallow.

It also takes more work to put in place. You will need to research companies, get quotes, read through terms and conditions, go through an application process, and so on. It’s definitely a lot more work than simply taking your employer coverage, though a good financial planner could make that process easier.

So, which one is best?

The right way to go really depends on the specifics of your situation, and it’s also doesn’t have to be either/or. Sometimes a combination of group and individual insurance can lead to the best results.

In general, I tend to encourage clients to get their own insurance simply because it’s usually better protection. It’s theirs no matter what happens with their job, and they can ensure that they get all the coverage they need.

But group coverage can be great as supplemental coverage, on top of what you have on your own. It can also be great when your medical condition might make individual insurance either too expensive or unobtainable.

In the end, this is about getting your family all the protection it needs. However you do it, that’s all that matters.

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10 Comments... Read them below or add one of your own
  • Done by Forty April 21, 2015

    I may be just in a lucky minority, but the work options have typically trounced the things I would buy in the open market. While there may certainly be better coverage options available in the market that I would like, their cost is so high that I could not seriously consider them a real option.

    When comparing the options I could actually purchase, the subsidized options through the company are too good a value. It’s not close.

    • Matt Becker April 21, 2015

      Well, that’s great if your company offers great coverage! Especially if it’s a relatively stable job and the risk of losing the coverage is therefore relatively low. Sounds like you’re in a good spot!

      • Done by Forty April 22, 2015

        The comments below have me wondering if maybe that’s not the case.

        For now, I’m banking on the fact that I could pick up insurance quickly on the open market, assuming that losing a job counts as some sort of ‘qualifying’ event.

        • Matt Becker April 22, 2015

          Well with health insurance the answer is yes, losing your job would generally count as a qualifying event and you could pick up coverage through the new exchanges.

          But life and disability work differently. You can apply at any time, so you don’t need to worry about any kind of “qualifying event”. But there’s no guarantee of coverage, and the price and availability will depend heavily on your age and health at the time of your application. By the time you’re facing the need, it’s possible that the price will be much higher, or in some cases you may not even be able to get them at all. Or, like in Money Beagle’s case, the timing might just work out that you can get the coverage you need at a price you can afford.

          It’s also important to keep in mind that disability insurance is also very sensitive to your current income AND the type of work you’re currently doing. So if you’re out of a job, you may not be able to get it at all since there technically isn’t any income to replace. Or if you switch to a different job that insurers deem to be higher risk, you may have to pay more and/or not get quite the same benefit.

          So there are definitely risks to waiting, which is why I generally encourage people to get individual coverage if they can.

          Though I will say that knowing a little about your situation, given how close you are to retirement/financial independence it may be that your need for either life or disability insurance just isn’t that high. So in your specific case, these risks might not be quite as “risky”. I don’t know that for sure, just something to think about.

  • Money Beagle April 21, 2015

    For a long time I worked for a company that offered a ton of life insurance, so that it completely covered our needs. Then, we got shuffled around to a different company and that was no longer an option. We bought it on the private market, and while the cost was higher, one thing that we had going for us is that we made the transition when my wife and I were both in our 30’s. Had this transition been delayed, we could have eventually been forced to pay a lot higher premiums as your age when you sign up is a huge factor in the price you pay.

    • Matt Becker April 21, 2015

      Perfect example of the biggest issue with employer coverage. I’m glad you guys were still able get what you needed, but for others it may not be quite as easy.

      One thing to note with life insurance in particular is that while group coverage through work is often cheaper when you’re younger, the tables can turn once you reach your 40s. So even though you might have had to pay a little more right when you made the switch, down the line you may actually be saving money. It’s not always the case, but it’s worth looking out for.

  • Donald Hune October 20, 2015

    I’m 59 1/2 years, spouse retired, 6 year cancer survivor with grown children. I have a $250K mortgage, 401K’s worth $1.1, 6 years with my current company. Company benefits offers basic life & AD&D for $50K each at no charge, $375K additional basic life at at $101 per month & $375K additional AD&D at $8.72 per month. My individual $100K, 20 year term from AAA costs me $105.25 per month. Would you agree, the company’s offering is better? I am going to keep my individual plan but lower the amount to the minimum, if there’s a change in employment, I can always go back and add more coverage. Is this sound investing? Thanks

    • Matt Becker October 20, 2015

      Good question Donald. The company plan is definitely cheaper, but my main question is what happens if the coverage you have with your company goes away? Would you still be okay then?

      To go along with that, what is the life insurance for? Is it to handle the mortgage? Just making sure you actually need life insurance.

      I can’t say anything for sure, but I would simply consider how much you need the coverage, and if you really need it, how comfortable are you with your coverage essentially being at the whim of your employer. If it’s the kind of thing that’s helpful but not 100% necessary, then the individual coverage may be less valuable.

      Also, I realize that the cost is small, but I would think about whether you really need the extra AD&D coverage. I’m generally not a huge fan of policies that are so narrowly defined, though they can have a place.

  • Shin September 25, 2016

    Hey there – my question might be naive as I am new to the US and not at all familiar with how insurance works here, but here it goes:

    My work offers insurance but it sounds like what they offer is only good for when I’m in deep need: it has 2000$ of “I pay first out of pocket” and a 6500$ of max out of pocket. This plan is totally paid for by my employer, and so although I’m not a big fan of it I’m taking it anyway.

    So now I wonderer if I can somehow add a plan on top of this to make my share of out of pocket less, if that makes sense? Like cheaper doctor visits etc even before meeting the firat 2000$ ? Is this doable? If yes, where should I look for a good plan?

    Thanks beforehand!

    • Matt Becker September 26, 2016

      Good question Shin. To be honest with you, this isn’t something I know a ton about but I did find a resource that might be a good place to start: Supplemental Health Insurance.

      As an alternative to getting more insurance though, I would consider putting your money towards building up savings that could be used for any expense that comes up, whether that’s medical or otherwise. Here’s a post that talks about how to do that: How to Build Your Emergency Fund in Stages.

      Generally, the purpose of insurance is to protect you against really big costs that would be difficult/impossible for you to handle on your own. For smaller costs, like regular doctor’s visits, it’s often more efficient to handle them with savings.

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