Annual Enrollment – Life Insurance

You need life insurance if somebody relies on your income and you are not yet financially independent. Making sure you have the right amount in place is priority number one. Priority number two, then is optimizing the cost. Do not cancel existing policies before your replacement coverage is approved and active.

Full Transcript:

With annual enrollment coming up, should I keep my life insurance that I have through Shell?

Shell employees get life insurance coverage equal to two times their base salary as an included benefit. In addition to this, they can purchase more life insurance during annual enrollment. Now, if somebody relies on your income and you are not yet financially independent, you need life insurance. Making sure you have the right amount in place is priority number one. Priority number two, then is optimizing the cost.

Let’s look at a hypothetical example. Let’s look at John. John is 50 years old, and John has a base salary with Shell of $250,000. Now, John has determined that he needs $1.25 million in life insurance in addition to the Shell-provided coverage. So John has been paying for five times his salary through annual enrollment, and his current premium is $2,600 per year.

Now, John looks at a third party broker to see if he can get life insurance outside of Shell for a better rate. Now, there are three advantages to going outside of Shell and one distinct disadvantage. The disadvantage, of course, is that it is now dependent on you and your health rating alone.

Now let’s talk about the three advantages. One, you may be able to get it cheaper. So, with Shell’s coverage, it is the cost of the average enrolled individual. So, when we look at the average health ratings of people, if you are in the better half of health ratings, you can get cheaper coverage. Two, when you get insurance outside of Shell, the premium is likely a level-term premium. With Shell’s coverage, it can reset and go up each year, and then it will drastically go up every five years. So, in John’s case, this is when he reaches age 55. And lastly, it’s portable. If you have your coverage through Shell and you leave Shell, you not only have lost your job, but you’ve also lost your life insurance coverage. Now, with your third-party policy, it’s yours to take with you.

Now, John is in really good health and John doesn’t smoke. So when John got approved for life insurance coverage, he was approved for a $1.25 million policy at $1,000 per year for a ten-year level-term policy. So, John’s saving $1,600 per year right off the bat, and will likely save much more in future life insurance premiums. So by shopping for a third-party policy, John’s going to save five figures on insurance over the next ten years.

Now, let’s say John was more of an average health rating. If he got a standard health rating, it would still be $300 cheaper per year just to start. So, I encourage you to determine how much life insurance you need, and then shop a third party to see if it’s in your best bet to stay with Shell or to go to the third party.

Now, I generally steer all of my clients away from expensive permanent life insurance policies like whole life. I like to keep their insurance separate from their investments.

I encourage you to reach out to me or your financial advisor if you want help shopping life insurance. And please continue to like these videos on social media and share them with your colleagues.