• Small need. Some employees, especially those who are single or without children, may only need a small amount of life insurance and can get all they need through their employer's offerings.
• Health issues. For anyone who has a life-threatening illness, or even a medical condition that lessens insurability, group insurance can be not only a preference but also a necessity.
• Affordability. Many group insurance coverages are affordable since they cover the lives of a large number of people, hence spreading the risk of any one unhealthy person.

        Many of these same factors also apply to long-term disability insurance. In fact, Andrea Schaffer of Strategic Financial Group says that LTD can be even more of a critical decision since this type of insurance basically insures your ability to work and earn money. "Given the paycheck-to-paycheck lifestyle that most employees live, having LTD insurance could be argued to be just as important as life insurance," says Schaffer.

        Ironically, many people focus on obtaining life insurance and assume they are done with the insurance question. Statistics bear out the fallacy of this strategy. At the age of 42, you are three times as likely to become disabled as you are to die. In addition, one out of every seven workers will suffer a five-year or longer period of disability before age 65.

        This is one reason that LTD insurance is more expensive than life insurance, since the length (and cost) of a LTD claim is much more open-ended than a life-insurance claim. Nonetheless, unless you are sitting on a mountain of savings or are near retirement age you have to ensure you have LTD coverage.

        Schaffer recommends employees first make sure they have enrolled in short-term disability protection, which usually covers disabilities up to 90 days. Next, she says employees need to be careful about how they pay for the LTD coverage. If the employer pays the premiums, the benefits will be taxable to the employee. A better idea is to have the employee pay the premiums with after-tax dollars in order to make the benefits tax-free to the employee.

A matter of life and death

        Of course life insurance is also important. The purpose of life insurance is to help pay for debts and final expenses, possibly fund a future account such as college savings for dependents and to help offset the lack of earned income from the deceased.

        In fact, this is the way you might consider going about adding up the amount of life insurance you need: combine the debts you would want paid, future accounts you want funded and add the number of years of future income you want to replace from your salary. One mistake that is often made: not insuring the life of a stay-at-home spouse whose services would likely need to be replaced with a nanny or housekeeper if there are small children.

        Determining the right amount of LTD is a similar exercise. Start with your current monthly spending. Take away those expenses you could do without if you encountered a life-changing event such as a major disability. The remaining expenses (normally about 60% to 70% of your current spending) is the number you want to insure.

        The amount of coverage you select will directly impact the cost. Men traditionally pay about 20% higher premiums for life insurance, and women pay about 40% higher premiums for LTD, according to Schaffer.

Employer plans vs. private insurance

        Once you have determined the proper amount of insurance your next decision is where to get it. Just as there are reasons one might want to get insurance coverage through an employer, there are also circumstances that argue for getting a private policy. These include:
 

• Health. A common myth is that group insurance is always cheaper. This might not be true if you are in a relatively safe occupation and excellent health. Remember, group coverage is effectively assigning you a premium based on the average health of the entire group. If you are in excellent health it might make sense to get rated on an individual policy.
• Portability. You are already tied to your company for salary, benefits, retirement plans, etc. Do you really want to exaggerate that fact by adding something as crucial to your family as life and LTD insurance to that list? In addition, if you plan to make a job change in the future it might make sense to get a private policy that is more portable.
• Coverage. Given the high-spending lifestyle many Americans subscribe to, it may be that the amount of life or LTD coverage needed to meet your insurance needs is more than your company will allow. This is another example where obtaining a complimentary or even replacement private policy might be best.

        Finally, whatever type of insurance policy you decide on, make sure you review it at least annually for changes in the plan or in your personal circumstances.