Is my employer’s life insurance enough?
If you’re like a lot of people in the workforce, you might have signed up for your company’s life insurance program as soon as it became available. Registration was simple, and the insurance most likely costs you little or no money. Choosing to join might have been an easy decision.
But is basic life insurance through an employer enough to meet your needs? According to a 2022 survey, 26%1 of workers believe that it is. But you might be shocked to discover that it may not be. Let's go over some considerations and learn if life insurance through your employer is right for you.
How does employer life insurance work?
Employer-provided life insurance is a type of group life insurance because the plan covers everyone who chooses to participate at your company. Employers enter into a contract with a central insurance agency to provide life insurance coverage conveniently to all their employees.
Employer-paid life insurance often means that your company will pay the entire monthly bill for your insurance. But this isn’t always the case. In some instances, your employer will pay most of the cost, but you’ll still have to pay a small amount that’s typically deducted from your paycheck.
Why do employers offer life insurance?
Group life insurance makes an excellent addition to an employee benefits package. Companies that offer free life insurance often have a hiring advantage over a business without a group plan.
One reason for the benefit’s popularity is that even workers with serious health issues usually find it easy to get insurance through group coverage. Everyone at the company automatically qualifies because the insurance company doesn’t mind accepting the risk of insuring a person with health challenges as long as most of the other insured coworkers are healthy.
How much life insurance does an employer provide?
The median coverage for a company employee is $20,000 or one year’s salary.1 Some companies may offer you a plan that pays two or three times your salary.
If you need more insurance, employers may give you the chance to purchase an additional amount of insurance through the company’s group plan. Even then, however, there are still a few points to consider before deciding whether employer-provided life insurance meets all your coverage needs.
Does my employer’s life insurance meet my needs?
Is the amount of coverage your employer offers enough for your family? Will they be able to get by on $20,000 or on the equivalent of one or two years of your salary?
One consideration may be whether you want enough life insurance to help pay off your debts and provide for your children’s education. In addition, there may be other reasons why you need a larger insurance payout than what your employer’s insurance offers. For example, you may have an aging parent who relies on your income. In that case, you may want to factor in the cost of providing quality nursing care for that person after you’re gone. If you have questions about your needs, speak to a licensed agent.
Even if you are able to apply for more coverage through your employer-provide coverage, you may have to answer medical questions or get a physical. In that case, some medical conditions could prevent you from adding to your policy. Or you might be asked to pay more than you can afford.
Does my employer-provided life insurance carry over from job to job?
Maybe the biggest drawback of relying entirely on life insurance from your employer is that, in most cases, the life insurance provided by your company covers you only as long as you remain at the company. Typically, the insurance coverage stops when you leave, whether it’s because you resigned or because you were laid off or fired. If you see yourself leaving your job at some point in the future, you will need to think about how to replace the coverage you had. If you’re lucky, your new employer might also offer life coverage. But there’s no guarantee it will.
One option: convert employer life insurance to personal life insurance
One way around the problem of losing your life coverage when you leave your job is to convert your employer-provided life insurance to personal life insurance, if your company gives you that option. Usually, no medical exam is required when a person makes the change. But once your coverage goes from group to personal, you, rather than your employer, will be responsible for making your full monthly payments. And at that point you might be able to get a better deal on both the cost and the amount of coverage if you just leave the employer policy behind and shop around for a new life insurance policy.
Should you get life insurance outside of work?
The life insurance provided by your employer is a great benefit. But it may not be enough. So, carefully calculate how much insurance your family needs and, if you need more coverage, consider purchasing a separate personal policy in addition to the group policy you have through your workplace.
