Many employers offer basic life insurance to their employees as part of a benefits package. Basic life insurance is a type of group life insurance that is provided to employees at no or very low out-of-pocket cost. Insured individuals can expect that their beneficiaries will receive a limited and predetermined death benefit if the policyholder passes away during the coverage term.
Understanding what basic employer-sponsored life insurance is and how it works can help you determine if you need to include this kind of life insurance coverage in your financial plan.
What Is Basic Life Insurance?
Basic life insurance is a form of group life insurance, wherein an insurer enters into a contract with an entity or organization, such as an employer, to provide low-cost coverage to the entire group.
Employers that offer basic life insurance generally provide policies with a specific death benefit amount, which is usually set as either a dollar amount or a multiple of the employee’s annual salary. In many cases, employees will pay nothing for the basic life insurance coverage. However, even if employees are required to contribute to the cost of their basic life insurance policy—usually through a payroll deduction—the premium costs tend to be affordable, as the insurer bases its prices on the risk of the entire group, as opposed to only the person being insured.
You can expect basic life insurance policies offered through an employer to be guaranteed, meaning they require no medical questions or exams to qualify. However, some employers limit their basic life insurance offerings to employees under 65, so be sure to read the fine print.
How Basic Life Insurance Works
When employers offer basic life insurance as an employment benefit, the organization holds the insurance policy, and the individual employees each receive a certificate of insurance. Basic life insurance is usually issued as annual renewable term life insurance, which means your employer can renew it every year. Basic life insurance coverage typically remains in force for the duration of your employment.
Depending on the insurer, you may be allowed to keep the policy (known as porting insurance) or convert it to a different type of life insurance after your employment is terminated, as long as you take over paying the premiums. But this tends to be a much more expensive option than finding an individual policy on your own.
Do I Need Basic Life Insurance?
Basic life insurance is easy to qualify for and often costs you little or nothing. Most employees who are offered basic life insurance will want to take advantage of the opportunity, as this inexpensive (or free) perk can help provide added peace of mind.
However, having basic life insurance does not mean your life insurance needs are fully covered. For example, your employer could terminate the policy without warning, which could leave you without coverage if this is your only policy.
In addition, the level of coverage offered by most basic life insurance policies is unlikely to be sufficient for your life insurance needs—for instance, one or two times your annual salary. It is, in a word, basic, and may not offer a large enough death benefit to cover your family’s financial needs, like paying off a mortgage or paying for your children’s college tuition.
It’s better to have basic life insurance than no life insurance, but your best strategy is to calculate the amount of life insurance you need. Going through this exercise will help you make sure you have enough coverage to take care of your dependents if something happens to you.
Basic Life Insurance vs. Voluntary Life Insurance
Many employers allow employees to purchase voluntary life insurance, also known as supplemental life insurance, as a way to “top up” their basic life insurance policies. Voluntary life insurance allows you to buy additional life insurance coverage at a lower rate than you would likely find when buying insurance outside of your group plan. That means employees could stack voluntary life insurance on top of their basic life insurance to increase their coverage for less than they’d pay if they bought a separate policy on their own.
Like basic life insurance, the voluntary type is generally guaranteed up to a certain limit, making employer-sponsored life insurance available to people who may not otherwise qualify for a policy.
Voluntary life insurance may also allow you to purchase spousal or dependent life insurance policies at the group rate, although the benefit amount for such policies tend to be very limited.
Like basic coverage, voluntary coverage may not be portable if you leave or lose your job and could be terminated if your employer owns the policy. It’s best to have another life insurance policy in place with sufficient coverage outside of your employer’s plan, if possible.
Key Takeaways
- Basic life insurance is life insurance sponsored by workplaces and is generally guaranteed with no medical questions or exams.
- Insurers offer organizations a lower group rate for premiums, meaning basic life insurance is offered at either no cost or low cost to employees.
- Basic life insurance may be portable if the employee takes over paying premiums after leaving their job, depending on the insurer and the specific policy.
- The death benefit for basic life insurance is generally modest, and this kind of insurance is unlikely to be sufficient for individuals with dependents.
- Basic life insurance can often be supplemented with voluntary insurance, which employees can purchase at the group rate.
FAQs
Coverage for basic life insurance is usually a maximum of one year's base salary, without commission or bonuses. For some, this amount is enough, but many will need more life insurance coverage.
What is the basic life insurance? ›
Basic life insurance provides affordable coverage through employer-sponsored plans, offering financial protection to beneficiaries in the event of the policyholder's death. Updated July 24, 2024.
Is basic life insurance enough? ›
Basic group life policies through work help to round out comprehensive life insurance coverage; however, the limitations of these policies and the uncertainty of events that would terminate coverage, such as losing your job, mean that getting your own individual life insurance policy may help to ensure an after-death ...
How to answer life insurance questions? ›
Medical history: Your life insurance application will ask about significant medical conditions you have or have experienced including chronic illnesses, past surgeries or other major medical treatments. Be as specific and detailed as possible about each situation, its duration and your ongoing or past treatment.
What is the basic life insurance needs? ›
How To Calculate Your Life Insurance Needs. Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage.
What is basic term life insurance? ›
A term life insurance policy is the simplest, purest form of life insurance : You pay a premium for a period of time – typically between 10 and 30 years – and if you die during that time a cash benefit is paid to your family (or anyone else you name as your beneficiary).
What does basic insurance mean? ›
A basic car insurance policy has the minimum coverage that's legally required in your state. This usually means having a liability policy to pay for the other driver's car repairs or medical bills, when you caused the accident. It may also include personal injury protection (PIP) if it's required where you live.
Can you take money out of your basic 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.
What does basic life insurance not cover? ›
Life insurance can help cover end-of-life expenses, estate planning, legacy funds and long-term care. Life insurance does not pay out for certain deaths, such as suicide, within the first two years. Fraudulent activities, such as misrepresentation on the application, can lead to denial of the death benefit.
How long does basic life insurance last? ›
How long is a term life insurance policy? Term life policies are generally sold in lengths of five, 10, 15, 20, 25 or 30 years. In some cases, you can find 40-year term life insurance. The longer the policy, the higher your premium is likely to be.
For example, applicants might lie about their age, income, weight, medical conditions, family medical history or occupation. It's also relatively common for applicants to lie about their alcohol or drug use.
How do you answer insurance questions? ›
Think deeply about the exact question the agent asked, and only provide that specific information. Never admit to fault. Never admit to even being partially at fault. Never admit that you are uninjured.
Which is the best life insurance? ›
Top life insurance companies
| Company | Best for | AM Best Financial Strength Rating |
|---|
| Mutual of Omaha | Digital accessibility | A+ (Superior) |
| Nationwide | Customer satisfaction | A (Excellent) |
| Northwestern Mutual | Universal life insurance | A++ (Superior) |
| Prudential | Policy personalization | A+ (Superior) |
3 more rowsBasic life insurance is typically a form of term life insurance, offering coverage for a specified period, often ranging from 10 to 30 years. It provides a death benefit, a lump-sum payment to beneficiaries, if the insured passes away during the term. This coverage is usually limited and often employer-provided.
How much does basic life insurance pay out? ›
What is the average life insurance payout? Not all life insurance payouts are created equal, and may depend on several factors covered below. On average, however, a typical life insurance payout in the U.S. is about $168,000.
Is basic life insurance free? ›
Basic life insurance may be available at a lower cost, or may even be free for employees, because it's part of a benefits package from an employer. Depending on the details of the policy, you may have your premiums paid for or be able to lock in coverage for several extra dollars per month.
What is the basic type of life insurance? ›
There are many types of life insurance policies that can help protect your family, and they all fall into two main categories: term and permanent.
What is the most basic life insurance? ›
Term life insurance is a simple, low-cost policy, and its main purpose is to replace your income when you die. How it works: Term life insurance is typically sold in lengths of one, five, 10, 15, 20, 25 or 30 years. Coverage amounts vary depending on the policy but can go into the millions.
What is the difference between whole life and basic life insurance? ›
The pros and cons of term and whole life insurance are clear: Term life insurance is simpler and more affordable but has an expiration date and doesn't include a cash value feature. Whole life insurance is more expensive and complex, but it provides lifelong coverage and builds cash value over time.
