Shop Around for Life Insurance

Suzanne and James Borovich started thinking about adding to their life insurance last fall. It was almost open enrollment season for company benefits, and Suzanne Borovich said she realized they didn’t have nearly enough coverage to provide for their two young daughters.

The Nebraska couple looked into buying more coverage through their respective companies. But Suzanne Borovich also started shopping on the Web for individual policies and soon learned that her company’s life insurance program was no bargain.

Much to her surprise, they were able to get more coverage for less money on their own compared with going through their employers. They bought $300,000 policies on each of their lives -- that was at least $100,000 more than either of them could buy at work -- and saved about $300 annually in the process, Borovich said.

Experts say insurance buyers would be wise to look around before open enrollment to see whether life coverage is available elsewhere at a better price.

“About the only time you would want to buy life insurance through the group plan is if your health is horrendous,” said Bryon Udell, president of AccuQuote, a Northbrook, Ill.-based insurance brokerage. “Almost everyone else can do better on their own.”

The high cost of group life insurance is common knowledge in the insurance industry, but unfortunately it is not well-known well known among consumers.

“Because medical coverage is cheaper through the group, a lot of people assume that life insurance is the same way. But it’s really the opposite,” said Patty Reiners, spokeswoman for Ameritas Direct, a Lincoln, Neb.-based insurer. “If you are healthy, you probably can do better with an individual policy.”

About 44% of life insurance policies sold in the U.S. are secured through group plans, according to the American Council of Life Insurers in New York. Group coverage also has been growing at a faster clip than individually purchased life insurance policies over the last decade. How much extra might group coverage cost? It depends.

Because the chance of dying rises with age, the difference in cost for group versus individual policies becomes more pronounced as people get older, Udell said.

A 35-year-old in average health probably would pay about 15% more with a group policy than an individual one, but a 55-year-old might pay 100% to 200% more for group coverage, Udell said.

For example, a $250,000 term policy with a 10-year guaranteed level premium would cost the 55-year-old $755 annually as an individual but $1,800 in a group. The 35-year-old would pay about $330 with the group and $285 individually.

What makes the group life insurance such a bad deal for healthy workers is the risk of what is known as adverse selection, Reiners said. Because most groups guarantee that workers can buy some multiple of their salary in life insurance without undergoing a medical exam, life insurers assume that the health of the group applicant is not as good as the individual applicant, who must pass a physical exam to get coverage.

“With group insurance, the company doesn’t know anything about your health, so the premium reflects that uncertainty,” she said.

Still, some individuals prefer group coverage because the coverage is easy to get -- it can involve as little as checking a box during open enrollment -- and doesn’t require a physical, said Paul Graham, vice president of insurance regulation and chief actuary at the American Council of Life Insurers.

To buy an individual policy, on the other hand, the consumer must fill out a detailed questionnaire inquiring about his or her age, health, activities and occupation, in addition to submitting to a physical examination.

If the exam goes well, the policyholder wins by being able to buy more coverage at a lower price, he said.

But if the exam turns up an undisclosed ailment -- particularly if it’s a chronic or serious one -- the consumer may have no choice but to buy life insurance through the group plan. Many insurers will not write individual policies for high-risk consumers at any price.

“By shopping now, you’ll know where you stand when you have to make a decision,” Reiners said.

Insurance shopping, even with the ease of the Web, may not sound like fun, but it’s worth it, Suzanne Borovich says.

“When you buy insurance on your own, you only pay for your own sins,” she says.

“When you buy with a group, you’re paying for everybody else’s problems.”

*

(BEGIN TEXT OF INFOBOX)

Group versus individual rates

In this chart, individual rates are based on a healthy nonsmoker who buys a 10-year level-premium term policy. Group rates are set in age bands; therefore, a 35-year-old pays the same as a 39-year-old.

Annual premium for $250,000 coverage

60

Individual rate: $3,030

Group rate: $750

*

55

Individual rate: $1,860

Group rate: $485

*

50

Individual rate: $1,109

Group rate: $287

*

45

Individual rate: $720

Group rate: $207

*

40

Individual rate: $420

Group rate: $135

*

35

Individual rate: $330

Group rate: $112

--

Source: AccuQuote

*

Kathy M. Kristof welcomes your comments and suggestions. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.