Table of Contents
Key Takeaways
- Employer-provided life insurance coverage, also known as group life insurance, is a popular employee benefit that often offers discounted or free coverage.
- Relying solely on employer life insurance can have drawbacks, such as losing coverage if you leave the job, limited coverage amounts, and the temporary nature of workplace policies.
- Depending on your life stage, it may be beneficial to consider additional personal life insurance coverage to ensure adequate protection for your loved ones.
- Conducting a financial needs analysis with a financial representative can help determine the amount of coverage required beyond what is offered by your employer.
- Supplemental life insurance policies can provide extra coverage, and options such as whole life, universal life, or term life insurance should be considered to enhance your overall protection.
Like many Americans, it's likely you have a life insurance policy through your work — and it's also likely you haven't thought much about it. Company-paid life insurance is a popular and valuable employee benefit. Often, you can receive discounted or free coverage through these programs. So getting basic life insurance through an employer is a win-win benefit, right?
Not quite. Relying solely on employer life insurance can have some potential downsides that are important to consider because it could leave your beneficiaries and loved ones unprotected. It might be time to examine your coverage and think about your personal needs.
We'll examine the potential problems of exclusively relying on employer-sponsored life insurance, as well as important life insurance considerations for different stages of your career. Here's what you need to know about employer-paid life insurance policies and what to think about as you explore your options.
Employer-Provided Benefit Explained
When you receive life insurance coverage through work, it's also called group life insurance. Typically, employers will offer this as a benefit at no (or low) cost to you. Research from the Bureau of Labor Statistics shows that about 60% of private-sector employers offer group life insurance, and 98% of employees take it.1 For many, getting employer-provided life insurance is an easy way to get some coverage with little to no cost involved.
While that's a great start, people sometimes get into trouble because they assume their work coverage is enough. It's easy to think that you don't need anything else since you already have life insurance at work. But as you move further along in your career, you may outgrow the life insurance provided by your employer, especially after you get married and have children.
The Trouble With Employer Life Insurance
When you receive life insurance coverage through work, you don't own the policy — your employer does. If you ever quit or lose your job, there's no guarantee you can keep your coverage. While some companies let you keep your policy, others cancel coverage for former employees. This means, more or less, workplace life insurance is temporary life insurance.
Let's imagine you have put in your two weeks' notice at work to pursue your dream of opening a bakery. Cupcakes and pastries are your passion, and you're anxious to get baking. Your employer, while sad to see you go, doesn't let you keep your life insurance policy after you leave. Would your family or other loved ones be financially protected if you were involved in a fatal accident after your coverage expired?
If your coverage expires and you want to stay insured, you might consider applying for your own policy. This could mean having to pass a medical exam, but there's no guarantee you'll qualify. Even if you qualify, you'll be buying a new policy at the age you are when you leave your job — and life insurance generally gets more expensive as you get older. That means it might be best to consider a personal policy sooner rather than later.
Another problem with life insurance through work? There's usually not enough coverage. Programs have a maximum limit to how much they'll cover, which is often three years' salary. If your family relies on your income, you may need more coverage to truly protect them.
Starting Your Career
When you're young, single and just starting your career, chances are your current life insurance needs are not very high. Maybe you need a life insurance policy to cover your final expenses or debts. It's possible your workplace coverage is enough for your needs — for now. Of course, life changes quickly. Do you plan to get married or start a family someday?
A common myth is that the life insurance policy provided through work is all you need. In the future, you might need extra coverage beyond what your employer life insurance offers. You could lock in a policy today that lasts your entire career, even if you change jobs — as long as premiums are paid. This also could be your best chance to qualify for a low price while you're still young and healthy.
Mid-Career
As you move further along in your career, it's possible you'll outgrow the life insurance provided by your employer — especially after you get married and have children. People sometimes get into trouble because they assume their work coverage is enough. They already have life insurance at work, so they don't think they need anything else.
It might be helpful to conduct a financial needs analysis with a financial representative to calculate exactly how much life insurance you might need to fully protect your loved ones. Leaving this up to chance could be risky. You may need more coverage than is available through work and could use an outside policy to help make up the difference.
Nearing Retirement
Once you get closer to retirement, you may need less life insurance coverage because your kids are growing up and you're close to paying off your home. Your employer life insurance could be enough for this stage in your career — but remember, your coverage may be temporary. Workplace policies are typically term life policies, which end once you reach a certain point (generally, when you retire or hit a certain age limit). After that point, you may not have any life insurance.
If you would like a policy to help protect your loved ones, you could consider adding a permanent life insurance policy that would last your entire life. Remember, it is generally less expensive and easier to qualify for a policy when you are younger. It could be more cost-effective to set up life insurance coverage now compared to after you retire.
Is Employer Life Insurance Enough for Your Spouse's Coverage?
One of the main benefits of a life insurance policy is it provides a death benefit to your loved ones that can help take care of their financial needs. Check the policy limits to your coverage, and decide if your death benefit provides enough to help your spouse pay for your burial, cover existing debt and pay future bills, such as your mortgage payment. If it's not, you might want to consider supplemental insurance.
Even if you have enough employer-sponsored life insurance, remember that your coverage is likely temporary. If you suddenly lose your job, you could be stuck without insurance, leaving your family unprotected. Something else to think about is what happens if you voluntarily change jobs later in your career and you can't bring your policy with you. Your income could be significantly higher by then, so you might need to pay more for your coverage needs. You also may have some additional health issues, which could potentially require a medical exam or even cause a provider to deny you coverage that could fit your budget.
How Much Supplemental Life Insurance Do You Need?
If your family relies on your income, you may need more coverage to help protect them beyond your employer-provided life insurance. No matter where you are in your career, a supplemental life insurance policy could make sense — and help put you in control of your financial future.
Sitting down with a financial representative to go over your needs might help you figure out the best options for you. They can work through the numbers with you and help calculate how much additional coverage will help keep your family financially secure after you're gone.
Consider the types of life insurance policies available to you. Whole life, universal life or term life insurance are all options that might be an excellent fit for your supplemental coverage needs. That way, you can think about coverage through work as an addition to your life insurance policy rather than your only policy.
Sources
- Employment Situation Summary. https://www.bls.gov/news.release/pdf/ebs2.pdf.
