Is the life insurance you have through work enough?

Whether it’s open enrollment season or you just started a new job (congrats!), you may be wondering if the life insurance you receive through work is enough. With the recent pandemic illuminating the need for emergency financial strategies, there’s never been a better time to reevaluate your life insurance coverage. Let’s run down the basics of the group coverage that may be available through your employer, its limitations, and the options you have for supplementing this coverage to ensure the financial stability of your household.

Employer-provided life insurance is a building block

Today, most people have their lone life insurance policy through work. Many employers offer it as a workplace benefit, and it’s referred to as basic group life insurance. There are both advantages and disadvantages to consider when looking into these policies.

Advantages of life insurance through work

• Cost of the policy. This is a plan that’s purchased in bulk by your employer, and just like shopping for any other product, buying in bulk affords an attractive price. Many employees may be able to receive basic coverage paid for by their employer.

• Convenient. Getting coverage through work is usually easy. Most paperwork is part of the hiring process and HR can help if you have any questions.

• Guaranteed coverage. Basic life insurance policies through work are usually guaranteed. This means that even individuals with serious health conditions will be able to get a policy. Many employers also offer supplemental policies for additional coverage without asking you to share information about your health. Although supplemental policies do help you to get closer to the actual amount of coverage you should have, you’ll likely still be short of the suggested amount, which depending on your age can be between 10x – 30x your annual salary.¹

Life insurance through work can be a great building block, but there are several reasons to consider adding your own coverage for comprehensive financial protection.

Disadvantages of life insurance through work

• Not enough life insurance coverage. Any bargain shopper will know that there’s usually a caveat to a good deal. Most group life insurance through work offers a relatively low policy ranging around $50,000 - $100,000, which may sound like a lot, but is a fraction of the suggested amounts you’ll find in the chart below.²

• It’s connected to your job: Even if you plan to stay at your current job for the rest of your life, your company may have to perform layoffs in the future, and this would cause you to lose your employer-provided life insurance. During the onset of the pandemic, many organizations had to unexpectedly cut ties with employees and this unforeseen termination can be devasting to your financial wellness. An extended stretch of unemployment could also leave you unprotected in an unstable economy, which can be an uncomfortable position, especially for a household’s primary earner.

• May not cover your spouse. While your employer’s health insurance typically covers your spouse, it’s not always the same for life insurance. If there is coverage, it may be minimal – around $100,000. While it’s better than nothing, it’s rarely enough to save families from the financial hardship that they may face after a premature death.

• Lack of a permanent option. The life coverage you get through work tends to be term life insurance, which is tied to a specific duration of time, typically between 10 and 30 years. When this term expires so does your coverage. You may not have access to the range of options that could be better suited for your financial situation, such as whole life insurance, which offers permanent coverage and a guaranteed death benefit that’s paid to beneficiaries upon your passing.ⁱ Whole life insurance also includes a cash value component that can be withdrawn or borrowed from during your lifetime, which can be used for milestone purchases like a down payment on a new house.^ii,iv

How much life insurance do you actually need?

At least 6 in 10 life insurance owners are underinsured but mistakenly believe that they have enough coverage.³ The basic term life insurance policies offered through work can be limited to low amounts — for instance, the same amount or double that of your annual salary. So, how much life insurance should you actually consider?

Source: livingbalancesheet.com

Getting life insurance outside your employer

If your family relies on your income, you’ll want to consider getting more coverage to protect them beyond an employer-provided policy. Meeting with a financial professional to review your needs can be a big help in figuring out the best options to keep your family financially stable after you’re gone. Whole life, universal life, or additional term life insurance are all options that can be a fit for your supplemental coverage needs. These policies offer benefits that typical group term life insurance won’t, such as guaranteed cash value growth that’s tax deferred.ⁱⁱⁱ

Though group life insurance should not be overlooked, additional coverage can help ensure strong protection in the event of an untimely death. 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 benefit for your family.