Upon browsing your welcome benefits package, you may have been pleasantly surprised to learn that your employer offers group life insurance coverage for employees. Most often given to those in full-time or salaried positions, group life insurance coverage through your job is a great perk. But is it what you need, and is the coverage enough for your family?
If you’re being offered a group life insurance policy through your employer, you’re in good company. In fact, LIMRA (Life Insurance Marketing and Research Association) found that nearly 70% of employers offer some form of life insurance to their employees. Of those, as many as 80% of employees take advantage of the coverage offered.
Let’s take a look at the pros and cons of workplace life insurance, and whether the policy is a good idea for you.
Pros of Workplace Coverage
One of the biggest benefits of getting a life insurance policy through your place of work is that it’s usually offered at a very low cost, or even given to you free of charge. This offers you an added peace of mind, without a significant monthly expense to boot. If your employer covers a significant portion of the cost for this coverage – or even provides it gratis – there is no reason to not to accept the policy.
Another benefit to workplace coverage comes if you have any sort of pre-existing medical condition, or are a bit older. If you have certain health concerns, have had cancer in the past, or are above a certain age, you will see your monthly premiums steadily rise. Jumping in on an employer-sponsored life insurance plan makes it easy for you to get just as much coverage as your coworkers, without having to deal with higher premiums due to your particular circumstances.
Workplace-sponsored life insurance is also incredibly convenient. You don’t have to worry about shopping around with various companies, comparing quotes, determining how much coverage to buy, or even planning health exams. With life insurance through your employer, you will be offered a fixed amount of coverage (usually 6 months to a year’s worth of your salary).
Enrollment is very simple and doesn’t typically require a health exam. Just make sure to submit the required forms as requested and name your beneficiary. It’s usually that simple!
Cons of Workplace Coverage
While you should never look a gift horse in the mouth – particularly when it serves to protect your loved ones – you shouldn’t simply rely on your provided life insurance coverage through your job. It typically falls far short of what you actually need to provide for your family.
As mentioned, workplace coverage is usually in an amount equal to 6 months or a year of your salary. While this is a great supplemental policy to have while you’re in the position, it is highly unlikely to be enough for those you leave behind in the event of an untimely death.
There are many ways to determine how much life insurance you need. A basic rule of thumb, though, is to get a policy in an amount that is 10 times your annual salary. This provides for your family’s everyday expenses for a number of years, allowing them both financial and emotional security.
If you own a home, carry certain types of debt, or want to provide for your children’s educational expenses in the future, you may even consider a life insurance policy in an amount significantly higher than that. It’s easy to see then why a workplace policy wouldn’t quite cut it. Some providers allow you to purchase additional, supplemental coverage on top of what your employer already offers, but this is not always guaranteed.
Also, there’s the issue of permanence. When you purchase a term or whole life policy, you know that your life insurance coverage will be there for your family when you need it. When you sign up for life insurance coverage that is tied to your job, that benefit is only as stable as your position within the company.
If you decide to change careers, you company lays workers off, etc., you will likely lose your work life insurance coverage. Some policies offer the ability to transfer your group policy to an individual one, but this is not always the case. Even if they do, your premiums will likely rise as you’ll miss out on those group rates offered through your employer.
Even if you’ve had life insurance through your employer for thirty years, you could find yourself high and dry once you leave your position. Depending on your age and medical history, you might have trouble finding an adequate, individual replacement policy in the private market. If you do, the expense might be too high for you to justify.
Lastly, not all employer-sponsored policies are created the same. While these group plans are usually low-cost, they don’t always offer the same benefits and options that private policies do.
For instance, you might be offered a life insurance policy that doesn’t have an optional living benefits rider. This add-on allows you to utilize your death benefits while still living, if you are diagnosed with a terminal illness. The funds can help you pay for medical treatments, end-of-life care, and even replace your income for your family while you’re in your final days.
Another beneficial add-on is a child rider. This allows you to add coverage for all of your children onto your personal life insurance policy. The rider is usually only a few extra dollars a month, but provides additional protection in case something were to happen to one of your kids… without the need to buy them their own personal policy.
Best of Both Worlds
If you’re debating whether or not to take the life insurance coverage offered by your employer, definitely do take it. This coverage is almost always worth the reduced expense, even with the understanding that it won’t meet all of your needs. If your employer offers this policy free of charge, there is no reason not to take it. It’s free money that would only serve to protect your family in a worst-case scenario.
According to LIMRA, 70% of families with children under 18 say that they would have serious trouble covering everyday expenses if the primary wage earner were to pass away. Life insurance will provide them with the peace of mind and financial protection they need during such a time. If you can get this coverage, or even a portion of it, for free, that’s even better.
If you’re single, don’t have any dependents, and won’t leave behind debt (like a mortgage or private loan with a cosigner), your work policy may be enough. It’ll cover your final expenses, at the very least, and relieve your family of that burden.
If you have a spouse who relies on your income, a mortgage, children, transferable debt (like a joint credit card), or other types of dependents (such as an aging parent who needs your support), you’ll need to look into supplemental life insurance. This may be offered through your employer, but the better option would be to purchase such a policy separately. That way, you can choose the life policy that best suits your needs, without the worry of coverage ending if you change jobs.
There’s no reason to say no to an employer-sponsored life insurance plan. In fact, this free coverage will provide your loved ones with an average of one year’s salary, at little or no cost to you. Submit your required paperwork and rest easy knowing that you have added protection.
However, you should also look into individual term or whole life insurance. This allows you to pick the policy that offers exactly what you need, and even has riders for things like living benefits. It won’t be tied to your job, so you don’t have to worry about switching plans or having a lapse in coverage if you ever choose to shift careers.
Take the time to decide how much life insurance you need, based on your family and financial situation. Enjoy your company’s low-cost group coverage, and buy more in the form of a separate plan, as needed. Then, you’ll not only leave your family secure, but have an added, free (or inexpensive) cushion to boot.
If you have questions about the amount of coverage you need, which life insurance policy is right for you, or how long you should buy coverage for, give Leap Life’s life insurance team a call at (844) 755-5327.