Is Your Employer-Provided Life Insurance Coverage Enough? (2024)

What Is Employer-Provided Life Insurance?

Employer-provided life insurance is group term life insurance that may be offered as part of your employee benefits package. If available, it is an option for all of a company's employees.

Term life insurance provides a death benefit for the insured's beneficiary. It remains in effect only for a specific length of time. For employer-provided term life insurance, that effective time period is while an employee remains employed by the company.

The amount of coverage is typically determined using a multiple of an employee’s annual salary. Or it may be linked to an employee's position at the company. Usually, employers pay most or all the premiums.

Employer-provided life insurance can be a good benefit, especially if you have no other life insurance in place. Bear in mind, though, that it applies only to the employee, and not to their spouse or children. Also, it’s important to consider whether the coverage offered is sufficient to meet your financial needs.

Learn how to determine whether you should buy an additional individual life insurance policy outside of your employer and about the risks of relying only on an employer-provided plan.

Key Takeaways

  • Many employers offer a certain amount of group term life insurance as part of their employee benefits package.
  • Your employer may pay for some or all of the premium costs of an employer-provided life insurance policy.
  • You may be able to buy additional coverage through your group plan.
  • Relying only on life insurance through your employer could put your family at risk if something happens to you and the coverage is not enough.
  • Buying an individual policy in addition to your company life insurance can be a smart way to ensure the financial protection you need.

Benefits of Employer-Provided Life Insurance

Convenience: If employee life insurance is made available to you by your company, starting coverage is simple. Just opt in.

Savings: Because employers usually pay for all or most of company life insurance premiums, employees can save or use for other needs the money they would have spent on coverage.

Acceptance: Most employee life insurance plans are guaranteed, meaning you'll be accepted whether you have serious medical conditions or not.

Early Protection: When you're just starting out or early in your career, you may not have the funds needed for life insurance. Employee life insurance can provide a degree of financial security for those who depend on you.

Added Coverage: You can usually increase your coverage as life events and needs change. An employer may offer the option of paying an additional premium amount to increase basic protection.

Riders for Extra Protection: An employer may offer riders (e.g., for certain degrees of illness and disability) to your basic policy that you may purchase for added protection.

Reasons Why You May Want Additional Life Insurance

Your Employer May Not Offer Enough Life Insurance

While basic employer-provided life insurance is usually low-cost or free, and you may be able to buy additional coverage at low rates, your policy’s coverage may not be enough to meet your needs. Many employers provide employees with about $50,000 to $100,000 worth of coverage, or about a year's salary.

If you have dependents who rely on your income, then you may require additional coverage to provide for their needs in the event of your death. Some experts recommend getting coverage worth five to 10 times your salary.

“Most people are able to buy an additional four to six times their salary in supplemental coverage over and above what’s provided by their employer,” says Brian Frederick, a certified financial planner (CFP) with Stillwater Financial Partners in Scottsdale, Ariz. “While this amount is sufficient for some people, it isn’t enough for employees that have non-working spouses, a sizable mortgage, large families, or special-needs dependents.”

On the other hand, not everyone needs life insurance. If you have no dependents or have an alternative plan for providing for them, your employer’s group life insurance might be sufficient. You may simply rely on the group life insurance, for example, to cover your funeral expenses or debts.

Keep in mind that simply multiplying your salary may not be enough to replace your actual income. Take into account bonuses, commissions, second incomes, and the value of additional benefits such as medical insurance and retirement contributions.

You Can Lose Your Coverage If Your Job Situation Changes

As with health insurance, you want to avoid gaps in your life insurance coverage. If you change jobs, are laid off, or are reduced to part-time status, then you could lose your employer-provided life insurance.

Some policies do allow you to convert your group policy to an individual one, but it likely would be more expensive.

You can generally find a more cost-efficient insurance policy outside of the employer’s plan, says Thaddeus J. Dziuba III, a life insurance specialist for PRW Wealth Management in Quincy, Mass. However, if you can no longer get medically underwritten for new insurance, you may want to opt for the conversion regardless of price, he said.

Even if you don’t leave your job, not having additional coverage can be a risk because of the possibility that your employer stops offering life insurance as a benefit.

Getting Coverage Is More Difficult When Your Health Declines

If you’re leaving your job because of a health problem or if your health has declined, you may struggle to get new insurance because insurers factor in your health when they approve you for a policy. A medial exam is a standard part of the process of applying for most life insurance policies.

“If you relysolely 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,” says Jim Saulnier, a CFP with Jim Saulnier & Associates in Fort Collins, Colo.

At that point, it maybe too late to purchase your own policy at an affordable rate, if you can get one at all, Saulnier says. So, having additional coverage outside your employer's plan can minimize the risk that you won't qualify for coverage when you need it.

Your Plan Doesn’t Provide Enough Coverage for Your Spouse

Your employer’s benefits package may not provide life insurance for your spouse. If it does, then the coverage maybe minimal.

"Families can often suffer economic hardship if either spouse dies, not just the primary breadwinner dies," says Saulnier. However, in many cases, employer-provided insurance does not adequately insure the spouse of the employee.

If your current employer-sponsored coverage doesn’t offer a sufficient death benefit for your spouse, then you may want to consider purchasing a separate policy.

Employer-Provided Life Insurance May Not Be Your Cheapest Option

Even if you feel that the life insurance coverage from your employer is sufficient, consider shopping around to see if your employer’s insurance really offers the best value.

The younger and healthier you are, the more likely you will be to find a better rate elsewhere. The coverage provided by employers tends to get more expensive as you age. In contrast, you can purchase guaranteed level-premium term life insurance that costs you the same amount every year for as long as you have the policy.

“Employer coverage starts out being very cheap prior to age 35 and then rapidly increases in price,” says Frederick. “Most policies increase every five years and become incredibly expensive once the employee turns 50. If you are healthy and a nonsmoker, buying a stand-alone policy might be cheaper than taking coverage through your employer.”

Important

When shopping for individual life insurance, consider whether it makes sense to include any riders such as an accelerated death benefits rider, a guaranteed insurability rider, or a long-term care rider.

Supplement Employer-Provided Life Insurance With a Policy of Your Own

Taking advantage of any free or inexpensive life insurance offered by your employer is often a wise financial move, but it may not be in your best interest to rely on it for your only life insurance coverage. Depending on your circ*mstances, you may want to buy additional coverage.

You can purchase other life insurance policies, such as an individual term life policy or a permanent life policy. Term life insurance offers lower premiums, but is only effective for a set period of time. Whole life policies (a type of permanent life policy) tend to have higher premiums, but they remain in effect until your death and can provide a cash value component.

In general, aim to buy the most insurance for your needs that you can afford at the youngest age. As you get older, your health could decline and your premiums could increase.

If you have other assets that can provide for your dependents, such as investments or money in retirement accounts, then you may need less life insurance. But, if you can afford to, err on the high side when estimating your coverage needs, in part because inflation could erode the value of your policy.

How Much Supplemental Life Insurance Is Necessary?

Life insurance needs are unique to an individual's financial situation, including their dependents and budget. One way to determine how much coverage you need is to multiply your annual salary by a certain factor. Many financial advisors recommend about five to 10 times your annual salary in coverage.

For an estimate tailored to your needs, consider first how much of your annual income that your dependents rely on and how many years they are likely to need it. For example, if you have very young children, then you will need to replace more years of income than if your kids were teenagers or older.

So, for instance, if your family should need $100,000 a year for 10 years to cover their living expenses, then ideally, you should have at least $1 million in life insurance.

Also, consider any large expenditures beyond your dependents' everyday needs. For example, if you expect to pay for your children's college education, then factor in those costs.

Once you've decided on how much life insurance you need in total, consider how much coverage your company life insurance provides and then purchase a supplemental policy to make up the gap.

What Is a Good Amount for Life Insurance?

A good amount of life insurance is an amount that will provide a death benefit that can protect your family from financial struggle, as well as one that you can afford. Many financial advisors saya reasonableamount forlife insurance is five to ten times the amount of your annual salary.For some people, life insurance may not be an ideal financial tool at all.

Should I Get Life Insurance Outside of My Employer?

You may want to consider purchasing life insurance outside your employer if the coverage you are receiving from the group plan is not enough. A common rule of thumb is to have five to 10 times your annual salary in coverage. Another reason for an outside policy is that if you leave your employer, you will likely be uncovered.

What Do You Need Life Insurance for?

You need life insurance if you want to ensure that you can financially provide for dependents in the event of your death. A life insurance benefit can cover or defray the costs of your funeral and burial expenses. It can pay for your loved ones' living expenses for a certain amount of time. It can also pay for your mortgage or other debts. The more life insurance you have, the more protection you can provide to your dependents.

The Bottom Line

Company life insurance, or employer-provided group term life insurance, offers employees a convenient and easy way to get some degree of protection for their dependents by simply signing up for it.

The amount of coverage provided through such programs may not meet all your financial needs and won't continue to cover you should you leave your employer. However, company life insurance can be worth opting into for its fast access to coverage and savings on premium costs.

Should you find that more is needed, you may be able to get additional coverage through your company plan. Or, you can purchase a supplemental plan outside of your company.

Is Your Employer-Provided Life Insurance Coverage Enough? (2024)

FAQs

Is life insurance through work enough? ›

The maximum amount of coverage you can get through your employer's plan may be less than the amount you need. Life insurance offered through your employer is typically term life insurance, not permanent — so you may have a gap in coverage if you leave your employer or retire.

What is the average life insurance provided by employer? ›

The median coverage for a company employee is $20,000 or one year's salary. 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.

What are some disadvantages of having life insurance only through your employer? ›

Coverage is tied to your job. Group life insurance is often not portable. This means if you leave your job, you may not be able to take the policy with you. You might be able to convert your group policy to individual life insurance, but the price could go up significantly.

Do employers offer whole life insurance? ›

Most often, employers only offer term life policies, not permanent life insurance. If you want permanent coverage, you will need to purchase a plan independent of the one offered by your employer.

Should I get life insurance outside of my employer? ›

Purchasing a term life policy outside of your job will allow you to decide on the amount of coverage you need for a set period of time. This could be a simple way for you to “top up” on what you have at work and gain adequate coverage. With a whole life policy, you can lock in a premium that will never increase.

Why life insurance through your job may not be enough? ›

Because the policy isn't owned by you, you have limited control over an employer life insurance policy. As with most benefits like your health and dental, if your employment ends or the benefit is terminated, your life insurance coverage will end too.

What happens to employer life insurance when you leave a job? ›

What happens to life insurance when you leave a job? Employer-provided life insurance policies typically terminate once you leave the employer. However, some policies may be "portable" after you leave your job, letting you pay for the same coverage via a renewable term life policy.

What does employer basic life insurance cover? ›

Basic life insurance is commonly offered by employers, providing coverage for a specific period of the policyholder's lifetime. Coverage amount is based on the policyholder's salary; beneficiaries receive the death benefit if the policyholder passes away.

What percentage of people buy life insurance through their employer? ›

Life Insurance and Annuities

Indeed, while only 27 percent of American adults say they have life insurance via a small group policy, more than two-thirds also say they would obtain such coverage if their employers offered one, according to a recent Harris poll for OneAmerica.

Can you borrow from employer life insurance? ›

The limit for borrowing money from life insurance is set by the insurer, and it's typically no more than 90% of the policy's cash value. When your policy has enough cash value (minimums vary by insurer), you can use it as collateral to request a loan from your insurance company.

Which is better, term or whole life insurance? ›

Term life is more affordable but lasts only for a set period of time. On the other hand, whole life insurance tends to have higher premiums but never expires. Knowing the differences between term and whole life insurance will help you choose a policy that works best for you and your lifestyle.

Can your employer take a life insurance policy out on you? ›

What is corporate-owned life insurance? Corporate-owned life insurance is a type of life insurance that employers may be able to take out on their employees. The employer acts as the policy's beneficiary, and when the employee passes away, the employer receives the death benefit.

Does employer paid life insurance count as income? ›

The IRS doesn't include employer-provided life group term life insurance coverage up to $50,000 in your taxable income, and won't increase your income tax liability. If your policy exceeds $50,000, though, the employer-paid cost is included in the taxable wages reported on your Form W-2.

Is life insurance tax deductible? ›

The IRS considers life insurance a personal expense and ineligible for tax deductions. Employers paying employees' life insurance premiums can deduct those payments, with some restrictions.

Which life insurance company is best for employees? ›

  • MetLife. 3.9. 7.4T. Reviews. 889. ...
  • Gallagher. 3.6. 4.3T. Reviews. 1.1T. ...
  • AIG. 3.7. 8T. Reviews. 518. Salaries. ...
  • AXA. 3.9. 7.2T. Reviews. 477. Salaries. ...
  • Sun Life. 4.4. 4.3T. Reviews. 596. Salaries. ...
  • Marsh McLennan. 4.0. 3.6T. Reviews. 704. Salaries. ...
  • PolicyBazaar. 3.6. 1.8T. Reviews. 1.8T. Salaries. ...
  • HDFC Standard Life Insurance. 3.6. 1.6T. Reviews. 1.8T. Salaries.

Should I get voluntary life insurance through work? ›

If you're considering voluntary life insurance, getting coverage through your employer is typically less expensive than getting an individual life insurance plan. Another benefit is it may be simpler to apply for coverage through your employer than scouting out options for yourself.

Can you take money out of work life insurance? ›

You can cash out a life insurance policy. How much money you get for it will depend on the amount of cash value held in it. If you have, say $10,000 of accumulated cash value, you would be entitled to withdraw up to all of that amount (less any surrender fees). At that point, however, your policy would be terminated.

Is life insurance a good side hustle? ›

Is Selling Life Insurance a Good Way to Make Money? You can make a good living selling life insurance, especially if you continue to earn commissions on policies you have already sold. However, it is not an easy career, as it requires constantly working to find leads, build relationships, and make sales.

How much of your salary should go to life insurance? ›

A common rule of thumb is at least 6% of your gross income plus 1% for each dependent. A stay-at-home parent should get enough life insurance to cover the costs incurred by the family if anything should happen to them.

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