APS offers supplemental group life insurance for up to 6 times your base pay without underwriting, and the cost is based on your age*. This may be valuable for those who are uninsurable; however, it can cost healthy, insurable individuals more than is necessary.
Scenario
Take for example a healthy 45-year-old male who needs $500,000 in life insurance through retirement at age 65.
If this individual pursued life insurance through the APS group plan, he would pay $68,640.00 in premiums over 20 years.
If this individual pursued a private term life insurance policy, he would pay $10,695.00 in premiums over a 20-year term with the best available underwriting**. If he was underwritten at standard health, he would pay $20,337.40 in premiums over the 20 years***. This cost savings is $48,302.60 to $57,945.00 over 20 years depending on underwriting.
Perspective
If the cost savings were invested and earned a 6.5% return per year, this individual would be $92,821.39 ahead at best underwriting and $74,102.93 at standard underwriting at the end of the 20-year period.
The Takeaway
Group life insurance is offered to employees with no medical exam or underwriting required, which means that every employee is lumped together for underwriting purposes. For this reason, healthy individuals may be better off seeking a private term life insurance policy.
We are happy to discuss the implications as it pertains to your situation.
Chandler Cole, CFP©
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This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such as advice services must be obtained on your own separate from this educational material.
Do not cancel pre-existing life insurance policies in anticipation of a new policy until it is formally in-force because insurability is not guaranteed.
LPL Financial, Knapp Capital Management, and Arizona Public Service (APS) are separate entities.
*You may elect and pay for supplemental life insurance coverage of up to three times your annual base pay, with a maximum of $2 million. Each year during Open Enrollment, you are allowed to increase your coverage by 1 times your annual base pay with a maximum of six times your annual base pay.
**Quotes for a 20-year term life insurance policy with a death benefit of $500,000 for a 45 year old male were shopped through a life insurance wholesaler across 8 large carriers on 10/12/23. Protective Life Insurance was the cheapest provider for ‘Best’ (Select Preferred) underwriting and ‘Standard’ (NonTobacco) underwriting.
***Nationwide was the cheapest provider for ‘Standard Tobacco’ underwriting. Quotes are subject to change and are contingent on underwriting.
