Many associations offer some type of optional life insurance benefits to their members. An individual member who requests coverage under such a plan must be medically underwritten, but because it is a group plan, the underwriting is usually not as extensive as it is with individually owned life insurance. I have previously written about life insurance provided by an employer, but today’s focus will be on association life insurance.
Associations such as AARP, American Medical Association, American Bar Association and the AICPA all offer their members an opportunity to participate in their group life insurance program. The programs are similar in how they work, although there are differences and the premiums aren’t exactly the same. I am very familiar with the AICPA plan, so any specifics mentioned here refer to that plan.
Many, if not most, association plans are priced on what’s known as a 5 year step rate basis. That is, the rate is level for ages 30-34, then increase at 35 and remain level through age 39, increases at 40 and remains level through age 44, et cetera.
The option to obtain such coverage is a nice perquisite of membership and the policies function similarly to individually owned term life insurance policies, in that you can name the beneficiary(ies) and can even name your trust as the owner to keep the proceeds out of your estate. However, there are some features that you should be aware of.
First, just like individually owned term life insurance, the coverage will end at some point and that point is not the same for all associations. For example, the AICPA’s plan ends at age 80, whereas the AMA’s plan ends at age 70.
Second, as reasonable as the coverage is at younger ages, it gets expensive rather quickly at older ages. For example, the AICPA’s age 55 premiums basically double at ages 60, 65 and 70. The benefit is reduced by 50% at age 75, effectively doubling the premium again.
It should be noted that if you are looking to your association for options regarding life insurance and you are not yet a member, the cost of membership should be added to the premium when doing cost comparisons. If you are already a member, that need not be done.
It is important to understand that since these are group plans, your coverage can be cancelled or your rates can be raised. To be clear, your coverage can’t be cancelled and your rates can’t be raised individually; it must be done on a group, or at least a class, basis.
That is why these plans should be a supplement to your individually owned policy, not in lieu of it. As attractive as some of these plans are, and some are quite competitive, especially at younger ages, that attraction comes at a price: the premiums are not guaranteed, and the group can be cancelled at any time by the carrier.