Employer Sponsored Insurance: Is it Good Enough Or Is there a Need to Look Beyond?

This has by far been among the most frequently asked questions in several of my Investor Awareness Workshops as well as my Webinars on Financial Awareness, and has thus been the primary trigger for me in penning this article down for the benefit of my readers.

I will share my perspective here from the view point of individuals employed in the private sector.

Most mid-sized to large private organizations, as part of their employee welfare programmmes provide their employees with Life and Health Insurance Benefits. The coverage amount and terms attached to these policies may differ from organization to organization based on their internal policies.

We will have a quick look at some of the important factors for employees to consider while evaluating the need for insurance coverage beyond what is offered by their employers. Our assessment will focus on two key insurance products; Term Insurance & Health Insurance as these are two of the very popular benefits offered by many private employers these days.

When it comes to Employer Provided Insurance, COVERAGE and CONTINUITY are among the most critical aspects that individuals should look at while evaluating the need for supplementary insurance. Let’s take a closer look at each of them:

I.COVERAGE: Speaking of coverage, I intend to draw your attention to the adequacy of the Insurance Amount (Sum Assured for Term Insurance / Sum Insured for Health Insurance), in ensuring that the primary purpose of taking out an insurance policy is comfortably met.

Term Insurance: When it comes to Term Insurance, the suitability of the cover is determined in terms of the adequacy of the amount in ensuring the following:

1. Guarantee one’s dependents (spouse, children), living expenses to lead a dignified lifestyle
2. Pay off all outstanding liabilities. (Home, Personal, Credit Cards, etc.)
3. Meet all Important Family Goals (Children’s Education, Marriage, etc.)

The Term Insurance Cover provided by most employers fall woefully short of meeting these important objectives, thus leaving the insured’s family exposed to a serious financial risk. Hence one must review their Employer Sponsored Term Insurance to assess the need for a supplementary term cover.

Health Insurance: Serious hospitalizations can leave a family in deep financial distress; even jeopardizing their life-goals. With Health Insurance, a comprehensive coverage will ensure hospitalization expenses are taken care of adequately, thereby providing the family a strong financial cushion against these risks.

However, in case of Health Insurance too, the coverage offered by most Employer Sponsored Health Insurance Plans is too low to offer adequate protection, leaving the individual and the family vulnerable against the risks of hospitalization.

II. CONTINUITY: This term refers to the unhindered continuance of an Insurance Product till the desired time period. The desired time period in this case refers to the tenure for which we need coverage against the identified risks.

Term Insurance: In case of Term Insurance, the risk cover should ideally last till the time one intends to work and earn. Beyond an individual’s working years, the risk of death doesn’t impact one’s family financially since there is no loss of future income. Hence the coverage of a term insurance should ideally last uninterrupted till an Individual’s financially productive working years.

An Employer Provided Term Insurance will cease to exist, the moment one leaves the organization to join another in pursuit of a better opportunity, leaving the individual (and more importantly the family) exposed to a huge risk. One could certainly argue that a fresh Term insurance is always an option available to us. This is true so long as the individual in consideration is still young and healthy. However the probability of contracting life-style ailments such as blood sugar, hypertension, etc. goes up considerably as one begins to age. This is big concern for individuals who are faced with a major career decision, especially in their mid or late thirties or even beyond. In effect, this raises the odds of an insurance application getting issued at an inflated premium to account for the higher risk covered, or worse, the application even getting rejected by the insurer. To the individual’s family and dependents, this means a sudden and unexpected exposure to a grave financial threat.

Health Insurance: As far as Health Insurance goes, the risk cover should necessarily last for a life-time. With employer provided health insurance, even if one continues to remain employed with the same organization till retirement, the prospect of having no insurance post retirement should ring alarm bells in the minds of the employees, especially considering the fact that the exposure to the risk of hospitalization increases several folds in the post retirement years. Moreover, hunting for a new policy at that stage of our lives comes with its fair share of problems i.e. higher premiums, longer waiting periods for existing illnesses, specific exclusions, and worst of all REJECTION. Thus, when a sudden change in life or work situation leaves you exposed to a serious risk, you are in effect putting your financial lives at the mercy of the unforeseen.

Finally, even when one looks at this situation from a employer’s perspective, at times, certain cost compulsions might drive them towards making material changes to their employees’ insurance cover or possibly even discontinuing the cover altogether, which consequently leaves the employees and their families exposed to the financial risks posed by life’s eventualities.

Thus, with Employer Sponsored Insurance Plans, the twin problems of MEAGRE COVERAGE and a distinct possibility of a BREAK IN CONTINUITY, pose a real threat, to employees and their families.

But hey; the good news is that you can supplement your existing insurance cover in a systematic and cost effective manner. (We are going to talk about this in one of our upcoming posts.)

If all this is reason enough for you to consider a serious re-assessment of your risks, the best time to do it is NOW.