Why Your Employer-Provided Life Insurance Coverage is Not Sufficient

Why Your Employer-Provided Life Insurance Coverage is Not Sufficient

Have you ever wondered whether your employer-provided life insurance coverage is sufficient or not? If so, this post is for you! Nowadays, most working professionals have life insurance coverage provided by their employers. As such, a common dilemma faced by employees is whether or not they need an individual life insurance policy, in addition to the employer-offered life insurance policy.

Employer-provided life insurance has become a norm these days, in order to attract good talent and ensure employee satisfaction. As part of the policy, companies pay for a fixed amount of life insurance for their employees and also allow employees to purchase more coverage at a low cost with no medical exam.  This sounds great because employees feel confident that they have provided coverage for their families.  Some people believe it is not necessary to have another individual policy when their employer is already providing life insurance. However, relying solely on the employer-provided life insurance can pose serious limitations.

The coverage of employer-provided life insurance is insufficient

The primary purpose of purchasing life insurance is to ensure that your family gets sufficient coverage, in case something happens to you. Though your employer-provided life insurance plan may provide coverage for your family, it is usually not sufficient.

The coverage provided under a group insurance policy is based on your salary, typically one to two times, and this amount is likely not sufficient. Your premature death would be a financial burden to your family and as a general rule of thumb, they would need coverage worth five to eight times your annual salary. For this reason, it becomes necessary to buy an additional coverage over and above what’s provided by your employer. The coverage of the employer’s policy is certainly insufficient for employees that have non-working spouses, a large mortgage, large families or special needs dependents.  Therefore, when buying life insurance, it is important to take stock of your assets and liabilities, and then decide on the coverage amount.

You’ll lose your coverage if you change jobs

Typically, you will lose your group coverage if you leave your job, if your employer goes out of business or if you switch to a part-time employee. Though it is possible to convert your group policy to an individual one, it is likely much more expensive than a stand alone, individual policy.  You’re now reliant on your next job to provide group life coverage, which is not guaranteed.  Also, if you convert an employer-provided plan, you are limited to just one insurance carrier.  It is likely that you could find a more cost-efficient insurance policy outside of the employer’s plan.  Further, group life insurance plans can be withdrawn anytime, leaving you with no coverage.

Not the most affordable life insurance option

Though you can purchase more coverage at a low cost through your employer, you should research to find out if your employer’s supplemental insurance really offers the best value for the money you will pay. Shopping around will help you determine whether buying an individual life insurance policy outside of your work is a good idea. Another drawback of the group insurance plan is that the policy provided by your employer tends to get more expensive as you age. Employer coverage starts out being very cheap prior to age 35 and becomes incredibly expensive once the employee turns 50.  With an individual policy you can lock in your rate for a specified amount of time, that you choose.

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