Individual life insurance: Why do I need personal coverage?

Whether you have group coverage or not, an individual life insurance policy is a key component of financial planning for you and your family.

You know you need life insurance, and that's half the battle. Good for you! Life insurance isn't an easy thing to contemplate, particularly because it involves something that might deeply trouble you — your death.

However, when you want to responsibly purchase life insurance, you might wonder whether you should get an individual policy or a group policy.

We'll take you through a few options so you can make the best life insurance decision for your own personal needs and the needs of your family.

What is individual life insurance?

First of all, what is individual life insurance? Individual life insurance aims to meet the financial needs of your surviving spouse or family members when you, the insured individual, die. Individual life insurance offers a death benefit for your beneficiaries and can help them cope financially after your death.

Individual life insurance involves one policy paid by one person — you — and which only covers one individual — you. Group life insurance, on the other hand, provides life insurance to members of a group. The group might involve employees of a company or members of an organization.

Main types of individual life policies

Two of the more popular individual life insurance policies include term life insurance and whole life insurance. Let's define each type of insurance quickly.

Term life insurance

Term life insurance can seem like one of the easiest types of life insurance to understand. It simply guarantees a payout of a stated death benefit if you die during a specific term of time. Many term life insurance policies run for 10, 20, or 30 years, but many companies offer additional five- or 10-year terms. For example, they might offer 35- or 40-year terms to give you more options. The basic premise of term life insurance is that you should have it when you owe money — such as on a mortgage, college for students, care for children, and other financial obligations or outstanding debts.

Whole life insurance

You might notice that whole life insurance goes by many names. You can also call it "whole of life assurance," "straight life" or "ordinary life." No matter what you call it, a whole life policy guarantees that you stay insured during your entire lifetime as long as you pay your premiums or until the policy's maturity date.

Group vs. individual life insurance

What should you do if you have the option to get group life insurance? Should you rush to your human resources office, sign up and dust off your hands? You might feel tempted to get a group life insurance policy if you recently got a new job or have the option to sign up during open enrollment season. However, does group life insurance make the most sense? Let's go over a few pros and cons.

Group life insurance

When you hop onto a group life insurance policy, your employer or labor organization owns the policy and the policy covers the employees in the group. Check out a few reasons you might want to hop onto a group life insurance policy:

  • Many employers offer free life insurance.
  • You often don't need to take a medical exam or answer health questions to qualify.
  • You only need to sign up — sometimes you can enroll automatically. Because basic life policies are free and coverage is typically guaranteed, there’s no reason not to accept it.

However, you also face a few downsides:

  • You don't get as much coverage with a group policy. These policies often range in coverage from $25,000 to a specific multiple of your annual salary.
  • You may have to get a supplemental plan to get more coverage — it can reach up to $500,000 or more, possibly up to five times your salary.
  • You could lose it if you lose your job. Some plans allow you to take life insurance with you if you leave a company but your costs could go up.
  • You don't get a choice on the type, coverage amount, or carrier.

Individual life insurance

You pay your own policy with individual life insurance. Check out a few pros to getting an individual life insurance policy:

  • Individual life insurance can offer more flexible coverage options.
  • It also allows you to choose your own coverage.

A major downside:

  • Individual life insurance costs more than group life insurance. Since the risk concentrates on a single person, the policyholder (you) cannot take advantage of the savings that you get with a group insurance policy, when risk distributes across many different people in a group.

Do I need individual life insurance?

Ultimately, individual life insurance helps your family cope when the worst happens — that they experience your untimely death. No matter what, you should make sure you have some type of life insurance. More importantly, you also want to make sure you have the right amount of coverage.

Take a look at this list of individuals who should definitely consider getting an individual life insurance policy. Do you fit onto this list?

  • Those who don't have life insurance through work
  • Parents with young children or special needs kids
  • One-income households
  • Business owners
  • Older adults without retirement savings

Are you single? You might wonder whether you need life insurance at all. However, you may want to seriously consider it if you carry student loan debt (because cosigners may still have to pay your debt if you die while carrying loans), have a mortgage, have cosigned debts (like those student loans!), you have business partners, you care for aging parents or you want to prepare for your funeral expenses.

When is the best time to buy?

As you can imagine, your younger, healthier self will pay less for life insurance. The best time to get life insurance is in your 20s or 30s because an insurer will take on less risk when they insure a young person in good health.

On the other hand, does that mean you can't find lower-cost, high-quality coverage at an older age? No! After all, we have children later and may acquire other financial dependents later in life. You want to do everything you can to buy an individual life insurance policy as soon as possible because costs could go up later on.


Melissa Brock is the founder of College Money Tips and a full-time freelance writer and editor. She loves helping families navigate their finances and the college search process. Check out her FREE essential timeline and checklist for the college search!

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