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:
- Through your employer
- 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.