"I Don't Need More Life Insurance - I'm Covered At Work." This is a common response to the question of life insurance by people who have life insurance through work. Usually, not much thought goes into determining if this cliché is even valid.
As part of your employee benefits package, your employer may provide some group term life insurance. While that’s a nice perk, especially if you have no other life insurance in place, it’s important to consider whether it’s sufficient to meet your financial needs. What’s more, relying entirely on your employer’s insurance plan to cover you can pose other problems.
With the pandemic illuminating the need for emergency financial strategies, there’s never been a better time to reevaluate your life insurance coverage, especially since life expectancy in the US had the largest one-year decline since World War II in 2020.
What Are The Possible Problems?
- It's probably not enough coverage. Group life insurance is broad and there's no opportunity to customize your policy. Employers typically offer coverage amounts that are a multiple of your salary. According to the Bureau of Labor Statistics, the median worker with access to group life insurance receives $200,000 in coverage. That's a reasonable amount, but anyone with a family to support, debt to pay off, or big future expenses will likely need a larger death benefit.
- You can't add riders to your policy. You also can't add riders to a policy you get through work. Riders are additional terms and conditions that enhance your coverage for specific situations. There are riders that allow you to accelerate the death benefit in the event of illness, get an additional benefit for the death of a spouse or child, or add more coverage for accidental death or dismemberment.
- You can't take the policy with you. Most group life insurance policies aren't portable when you leave your job. While you may have the chance to convert it to an individual policy, you'll have to pay the premiums your employer previously covered. Even if you don’t leave your job, there’s also the risk that your employer could stop offering life insurance as a benefit to save the company money, leaving you without coverage.
- Coverage gets tricky if your health declines. Another problem arises if you’re leaving your job because of a health problem. If you rely solely or heavily upon group insurance, and then suffer a medical condition that forces you to leave your job, you may be losing your life insurance coverage just when your family is going to need it the most. At that point, it may be too late to purchase your own policy at an affordable rate. Even if your health problems aren’t significant enough to stop you from working, they might limit your employment options if you only have life insurance through work. You could end up handcuffed to your job to keep the life insurance if you experienced a serious-enough health issue.
- You may want a . Most group life insurance policies are term, meaning they last for a set number of years and then expire. Financial experts often recommend for most people because it's affordable and acts as a safety net while you build up your savings, but it's not the only option. If you want to build cash value and/or leave money behind for your spouse, kids, or grandkids, a whole life policy could be a better fit. You can consult with us here at Family For Life Insurance to see if it's a good option for you.
- May not cover your spouse. While your employer’s health insurance typically covers your spouse, it’s not always the same for life insurance. If there is coverage, it’s probably minimal – around $100,000. While it’s better than nothing, it’s rarely enough to save families from the financial hardship that they may face after a premature death.
While there’s no reason not to take advantage of any free or inexpensive life insurance offered by your employer, it probably shouldn’t be your only insurance. Nor should most people rely entirely on the additional life insurance that they can buy through work.
The solution to each of the problems described above is to purchase some of your life insurance directly in the form of an individual policy.
You might need to purchase as much as 80% of your life insurance on your own to have enough and to make sure that you’re covered at all times and under all circumstances.
The most affordable solution is to buy the most insurance you can afford at the youngest age since, as you get older, the chance of acquiring an illness goes up—and with illness comes more expensive premiums.