The primary purpose of any insurance is to transfer risk.
Life insurance transfers the risk of dying prematurely by providing financial compensation to those impacted by the insured's death. The simplest way to estimate how much to take out is to take your annual salary and multiply it by the number of remaining working years.
EXAMPLE: You are 40 years old with a salary of $200,000. You plan to retire at 60. The estimated amount you need is $200,000*20 = $4,000,000.
This is a crude method of estimating the amount needed as everyone has unique situations and things that need covering. Once you have determined that you would like to transfer your risk of premature death and have calculated the amount you need, you can start looking at AbbVie’s life insurance plans:
AbbVie Basic Group Life Insurance
AbbVie offers term life insurance to all employees from day one of employment at no cost to the employee. The Basic Group Term life insurance is 200 percent of your basic annual earnings rounded to the next $1,000, with the minimum coverage being $30,000. The nice part about this benefit is if your salary increases, your benefit will increase.
EXAMPLE: Your Salary is $100,000. Your Basic Group Life Insurance benefit would be $200,000
AbbVie Supplemental Group Life Insurance
The Supplemental Life Insurance program gives you the option to add additional coverage to your Group Term Life Insurance. You must pay for the supplemental plan, and your premiums are calculated based on the amount of death benefit, your age, and some health factors. You can elect seven additional coverage levels starting from 100 times your salary up to 700 times your salary in multiples of 100. The maximum amount of benefit you can have between your group and supplemental plans is approximately $7 Million. As your salary increases, so do the supplemental coverage and premiums in a proportional manner.
EXAMPLE: Your Salary is $200,00. Your Basic Group Life Insurance benefit would be $400,000, and you elect to add $500,000. You now have a total of $900,000 death benefit.
You also can purchase coverage on any dependents under the age of 26 should they have a need for it.
Medical Underwriting
One of the benefits of participating in life insurance programs through your employer is acquiring coverage without what we call "evidence of insurability," which is also called medical underwriting. The Basic Group Life Insurance Plan and the Supplemental Plans are all offered free of medical underwriting if you apply for them within 31 days of hire. If you want to add Supplement coverage past your 31 days of hire, you will have to be medically approved by the insurance company.
Reduced Coverage at age 65
If you choose to work past your 65th birthday, your coverage will be reduced to 60%. Your premiums for the Supplemental portion are reduced by the equivalent amount.
What happens to my Life Insurance coverage if I decide to leave AbbVie for another opportunity?
As soon as your employment terminates with AbbVie, your Group and Supplemental Life Insurance benefits will end 31 days after your official employment termination date unless you choose to "port" or "convert" your coverage.
Porting your coverage means extending it for a specified period. An age-weighted factor may reduce the total benefit, but you get to maintain group premium rates, which are preferential compared to an outside policy of similar values.
Converting your coverage means transitioning your Group and Supplemental plans into an official individual policy with the insurance company. You can do this without "evidence of insurability" (no medical underwriting) which is ideal for those who may have recently developed medical conditions that may impact qualifying for new life insurance policies. You will pay retail premiums based on your age and coverage amount as if you were applying for the policy through regular channels.
Decisions About Beneficiaries
Beneficiary decisions are specific to each individual and family situation. Some may choose to leave their life insurance proceeds to their spouse, others may choose their children directly, and blended families need to have a deliberate design in these elections. Often these decisions go hand-in-hand with the design of a comprehensive financial plan, so don’t make these decisions without some professional help.
What do you need and what will pay out?
Most of this coverage will seem relatively cheap if you’re young. But even though it is cheap, you should only be purchasing what you need.
Using rough calculations, your life insurance coverage should be roughly 10-20 times your annual income. The nice thing about AbbVie’s supplemental policies is that you can get close to that by using standard and supplemental term insurance. If you need more than what is offered in life insurance and then opt for supplemental accidental death and disability (AD&D) insurance to cover your needs, you may not get everything that you were expecting should you pass away.
AD&D Insurance only pays out should your death be accidental, or should you be permanently disfigured from an accident. If you die or become disabled due to a health issue, this policy won’t pay anything. Making sure that you can cover your loss of income with just pure life insurance is very important. Understanding that an AD&D policy will pay out in fewer cases compared to life insurance means it is less valuable for covering your income.
EXAMPLE: You’ve elected to get an AD&D policy of $1,000,000 on top of your basic insurance at AbbVie. You fall ill and die from heart disease. The AD&D policy will not pay out any benefits to your heirs, just the basic insurance will pay out benefits.
Is it the best deal for you?
One thing that is not discussed with group life insurance is how it is priced. AbbVie employees, and those of other companies, are put into age-based “bands” and the life insurance cost is based on how old you are. Because of the number of employees taking part and the nondiscrimination rules that exist, participants' health is not considered. That said, as you get older, your group-term life insurance will get more expensive. It’s worthwhile pricing out the same coverage in a private policy and comparing it to your group policy at AbbVie to see if you’re still getting a good deal.
What should you do?
- If you’re covering loss of income due to death, then have it be done with AbbVie life insurance, not an AD&D policy.
- Always compare the coverage and cost of AbbVie supplemental life insurance (if you need more coverage), with a private policy to see which policy matches your situation in terms of cost and benefits.
- Don’t elect to take every benefit up to the maximum. Understand what your family needs in terms of coverage, and only elect that amount.
- If you have a large amount in savings, you may likely need less life insurance, so don’t make this decision in isolation – understand your insurance needs within the context of your entire financial plan.