The Hidden Gaps: Uncovering the Limitations of Employer Provided Group Insurance
In 2021, after the funeral of my friend and colleague Raghava Enumadi, I took out my first term life insurance policy in the USA. Life insurance is not something you take when you need it. You take it now so that it's used when needed. In this article, let's discuss some important facts and limitations that are often missed about the group insurance we get from employer. Don't get me wrong. Everyone should participate in employer group insurance. It's cheaper, easy to get and covers pre-existing conditions. But we also need to be aware of things it doesn't cover and the limitations. That will help us understand the gap and substitute with additional insurance needed. Please note that we are talking about only life insurance in this article and not the health insurance.
Let's review the cases the group insurance policy doesn't cover.
- Non-Business related trips outside the country
- Gap between switching the employers
- Comprehensive disability coverage
Non Business related trips outside the country
Most of us are immigrants to this great country of the United States. It's common for us to go back to home country to visit our family and friends. These trips normally span from 15 days to couple of months. Also, when we travel outside country, the chance of getting sick is high due to changes in weather, water, and other circumstances. The employer sponsored group insurance doesn't cover this personal travel outside the country. There are cases During COVID-19, where the breadwinner of the family in the USA, went to India to visit sick parents and siblings and never made it back to the USA. Unfortunately, these cases are not covered by default with employer group insurance because it's a personal trip outside the USA.
Similarly, pleasure trips to other countries falls into the same category. They are non-business and outside the USA.
Gap between switching the employers
When we change jobs, there could be some gap between the last day of previous job and the joining day of the new job. This gap could be voluntary or involuntary. It's very common for people to take break of a month or two between the jobs. People want to travel during this gap or take care of some long pending things.
Also consider the on-going layoffs saga in tech industry. When we lose job, we are not only losing the recurring income, but we are also losing the life insurance. Lot of companies give the option to convert the group insurance to individual insurance when you leave the job. but this path might not give you the best premium rates possible.
Comprehensive disability coverage
The short-term disability(STD) benefits as part of group insurance are limited. It's normally 60% or 1x of the salary and monthly caps are enforced. If the disability continues for long time, then, the long-term disability(LTD) benefits come into play. If the job termination happens due to the disability, then the employee is at the mercy of state laws for the protection of disability insurance benefits.
In all the above cases, having your own life insurance policy outside the employer group insurance comes handy. When you have your own insurance, you can customize it as per your needs. You can add riders like Waiver of premium rider, Disability income rider , Accelerated death benefit rider.. etc. Look at your assets and liabilities and understand the gap and insure yourself for that gap. If you think your family can't afford the financial burden in case something happens to you, then, transfer that risk now to an insurance company with an insurance policy. Insurance companies can afford it because only small percentage of policy holders get into unfortunate situation and claim the insurance. When we look from our point of view, there is no guarantee that we will not be in that small percentage. So, hope for the best and plan for the worst.
Happy learning! That's a wrap this week.
