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Nearly 60% of employees in civilian and private industries get life insurance coverage through their employer, according to the Bureau of Labor Statistics.
Employees often opt for this coverage because their employer offers it as a voluntary or free benefit. However, employer-provided life insurance may not provide all the coverage you need, depending on your income and family situation. Also, if you're no longer employed by the company, you typically lose the coverage. If this is the case, private life insurance may be a good option.
If you're wondering when to get life insurance or when to buy life insurance to supplement your employer-based coverage, here are some things to consider.
Employer-Provided Life Insurance vs. Private Insurance
Employer-provided life insurance is typically offered via group term life insurance. There's usually no underwriting process, health questionnaire or medical exam, so even employees with serious health conditions can qualify for a policy.
This is one major advantage of getting life insurance through your employer, especially if you wouldn't be able to qualify for a life insurance policy that fits your budget. However, the downside is that this coverage is usually limited, since an insurer will need to account for the increased risk of insuring some employees who may be high risk.
Another issue with employer-provided coverage is that you'll likely lose it if you switch jobs, get laid off or if your employer decides to stop offering life insurance as a voluntary benefit. You also may not be able to customize your coverage based on your family needs or income. These can be compelling reasons to consider individual life insurance.
The main advantage of seeking individual coverage is that you can shop around for a policy that meets your needs and budget. Employer-provided life insurance coverage is sometimes limited to one year's salary, so if you make $100,000 a year, you may only get a $100,000 policy. This likely won't be enough to meet your family's needs should something happen to you, especially if you have financial obligations such as child care, college tuition or a mortgage. Experts say most policyholders generally need coverage equal to 10 times their salary.
Since employee coverage may not be completely free, it could be a good idea to sign up for this coverage and then build on it. As your life changes, you might want to consider an individual policy.
When to Get Life Insurance: Key Factors to Consider
If you're mulling over when to buy life insurance through the private market to supplement what your employer provides, it's important to consider the stage of life you're in as well as your family circumstances.
If Your Family Is Growing
If you're getting married or about to have children, you may need more coverage. Before you shop around and compare insurance providers, use a life insurance calculator to find out how much coverage you might need. You'll have to provide information about your annual income, how many years your family will need this income should the unexpected happen and how much existing coverage you have. If you have younger children, your family will likely need more coverage to cover living and education expenses for them.
If Your Spouse Needs the Additional Income
A surviving spouse is another factor to consider. If your husband, wife or partner works full-time and you're part of a two-income household, you may need less coverage. However, if your spouse is a full-time stay-at-home parent, you'll typically need to get enough coverage to replace your salary for several years. You may also need to consider getting a life insurance policy for your spouse. Some employer-provided plans don't offer spousal coverage, so this is another good reason to consider private insurance.
If You'll Have Dependents When You Retire
Aside from getting married or having children, you may also need an individual policy if you plan to retire early — especially if you'll still have dependents at that time. Though some insurers may allow you to convert your group coverage to individual coverage upon retirement, it could be more expensive. Getting a supplemental individual life insurance policy when you're younger and healthier may help you access more affordable coverage before retirement.
Help Get the Financial Protection You Need
Employer-provided coverage is a great benefit, especially because sometimes it's free. However, it's best to use this coverage as a foundation.
Employer-provided life insurance may not be comprehensive or allow you to customize your coverage based on your needs. As your life changes, you'll likely need more coverage to help ensure your family is protected, so consider an individual policy to get the life insurance coverage you need. Speaking with a financial professional can help you identify the right level of coverage, as they can provide individualized guidance.
