Thursday, September 22, 2016

Watch Out for the Age Reduction Schedule in Group Term Life


The life insurance age reduction schedule is a group term life insurance provision. It reduces the face amount of your group life insurance when you reach certain ages like 65 or 70.

It's not unusual for an employee to first learn about this reduction at the age it first reduces. Details about how most age reduction schedules work and what you want to watch out for are below.




I also made this video that talks about group life insurance age reduction schedules.



RESOURCE: If you need a refresher on how group term life insurance works, start with The Complete Guide To Group Term Life Insurance.

What is the Life Insurance Age Reduction Schedule?


The age reduction schedule reduces the face amount of your group term life insurance. The reduction will occur if you are still working when you reach certain older ages. The most common age face amount reductions begin is at age 65 or 70.

It's there because it costs more to insure older individuals than younger ones. Instead of raising the premiums, they lower the amount of the life insurance if you are older.

When Does the Age Reduction Schedule Start to Reduce My Life Insurance?


When reductions start depends on the provisions in the group certificate. In general, these face amount reductions start at around 65 years or 70 years old.

I can't say for sure if your plan has an age reduction schedule. Every plan is different. I would need to look at your employer's group certificate to see for sure. I can say it's likely your employer's plan has a life insurance age reduction formula built in it. But like everything with group insurance it will depend on what the actual contract says.

An Example of How the Life Insurance Age Reduction Calculation Works


As I mentioned, the age reduction schedules will vary from plan to plan. Here is a sample schedule that begins at age 65.

  • At age 65: 25% reduction in life insurance
  • At age 70: 50% reduction in life insurance
  • At age 75: 75% reduction in life insurance
  • Benefits end at retirement

Group term life insurance usually reduces at older ages.
This means that if you have $50,000 in life insurance, it will be $37,500 at age 65. At age 70 it will reduce to $25,000 and then at age 75 it will reduce to $12,500. Finally, when you retire, under the example schedule, your life insurance would end.

Where to Find the Age Reduction Schedule in Your Employer's Group Term Plan


If you are lucky, you'll find the age reduction schedule is in your benefit guide. But I've noticed it's not always published. Sometimes, you have to check with the person who handles your benefits. This could be your human resources person or the agent who does the group life for your employer.

It's also not uncommon to find out that nobody knows what the schedule is when you ask for it. That's no surprise when it happens.

The best place to find the schedule is in the group certificate. Your employer should have a copy of it.

A few other points you want to be aware of:

  • Insurance carriers can change. It's not unusual for group term life insurance carriers to change from one year to the next. So remember, the age reduction schedule might be different when you get older. 
  • Every group plan is different. Group term life insurance plans vary from employer to employer. Check with each employer you work for to see how it works.
  • Group term life terminates. At some point, your group term life insurance expires anyway. That might be when you leave employment or at a certain age even if you are able to "port" it.
  • Spouse rules may be different. Rules on spouse age reductions may not match the employee. If you have your spouse covered under a group term life plan, you'll want to know how it works for them as well.

The most important thing to remember is to be aware of it.

Term Life Insurance Isn't Meant to Last Forever So Don't Expect It to Be There When You Need It


Group term life insurance is only designed to last for a certain period of time. It's not supposed to last for your whole life. So, there's a good chance you'll outlive the group term life insurance and it won't be inforce when you die.

If it was likely to be inforce when you die, then it would cost a lot more for everybody covered under the plan.

Conclusion


I've seen employees pretty upset that no one told them their life insurance at work would reduce. Had they known it would happen, it might have been easier to buy some whole life insurance. They would have been younger and could have been healthier.

So now you know that the age reduction schedule is out there and it's something you can plan for. It's a good idea to have at least enough permanent life insurance for your funeral.

Permanent life insurance may last your whole life.

The age reduction schedule is one of eight problems with group term life insurance.

Does your employer's plan have an age reduction schedule?

Let me know how it works in the comments below. Let me know if you have any questions as well.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.


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