Broker Check

Term or Group Life Insurance: Navigating the Waters of Financial Security

March 13, 2024

Most of my clients prioritize securing the financial future of their loved ones in the event of their unexpected passing. Financial institutions frequently recommend two types of life insurance policies: term life insurance and group life insurance through their employer. While both offer temporary advantages, it's important to understand their limitations and strategize accordingly to ensure your family's continued financial security when the coverage expires.

Understanding Term Life Insurance

Term life insurance is designed to offer financial protection over a specified period, such as 10, 20, or 30 years. The main appeal of term life insurance lies in its simplicity and lower premiums. This makes it an attractive option for individuals seeking affordable coverage in the event of a premature death only. However, the coverage ends once the term expires, which may leave policyholders without protection during their later years, often when it's most wanted; notice I didn’t say “needed.”

The critical viewpoint to consider is that term life insurance is inherently flawed; unfortunately, that is the main go-to for most financial professionals and institutions. Few are teaching the public a permanent, user-friendly solution. The perception of it as a long-term protection strategy raises concerns. The reality is that the odds favor individuals outliving their term life insurance policies. This scenario results in the insurance company retaining the premiums paid throughout the term without the obligation to pay out a death benefit. While this outcome financially benefits the insurer, it leaves the insured and the insured's family without the anticipated financial support and options to protect and enjoy wealth that a term policy simply cannot do.

The Role of Group Life Insurance

Group life insurance, typically offered through employers, provides a collective coverage option for employees. While it's a valuable benefit, often available at a lower cost or even free as part of an employment package, it shares a similar limitation with term life insurance: dependency on employment status. If you leave your job, you might also lose your life insurance coverage, which can be a concern during career transitions or after retirement.

Striking a Balance

It's essential to recognize that about 2% of life insurance claims are paid out from term life policies, with the remainder coming from permanent life insurance. This statistic underlines the importance of considering permanent life insurance options for long-term financial security. Permanent life insurance offers lifelong coverage and options that term or group life insurance cannot offer, and there are many strategies and options.

Conclusion

When considering term or group life insurance, it's vital to approach them as components of a broader financial strategy rather than standalone solutions. They serve as affordable and accessible options to protect your family during specific periods of vulnerability. However, incorporating permanent life insurance into your portfolio can provide enduring protection and peace of mind for long-term financial security and multiple financial strategies. By understanding the limitations and strategic uses of different life insurance policies, you can make informed decisions that align with your financial wants and dreams and ensure that you and your family have as many options available now and in the future, despite what life throws.

J. Arthur Financial is committed to helping you navigate the complexities of life insurance to secure your and your family's financial future. Our experts are here to guide you through your options and tailor a strategy that best suits your needs and circumstances.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges; if a policy is surrendered prematurely, there may be surrender charges and income tax implications. You should consult a qualified tax professional for tax advice on your own personal situation.  All guarantees are based upon the claims-paying ability of the issuer.