Company Life Insurance Coverage: Is It Enough?
If your employer offers group life insurance as a benefit, that’s a nice perk − especially if you have no other coverage. But when deciding whether to obtain individual life insurance, and how much protection you need, there are many important factors to consider, including:
- Do other people rely on you financially now, or will they in the future?
- How much income must be replaced in the event of your death?
- Would someone else have to pay your funeral expenses or outstanding debts?
- What are your long-term financial goals?
Make sure you have all of the information and numbers you need to make the best decisions for you and your loved ones.
What is employer-provided life insurance?
Employer-provided insurance is coverage you can get through your workplace. Basic group life insurance has preset options and limits, and the employer often pays some or all of the premium. Some employers also offer supplemental life insurance you can purchase for additional protection above the basic policy.1
What’s the upside of employer-provided life insurance?
- It’s easy to get. In a competitive employment field, more and more companies are offering group life insurance as a benefit.
- Basic coverage may be paid for entirely by your employer.
- There’s generally no medical exam and/or underwriting to obtain coverage.
What’s the downside of employer-provided life insurance?
- You typically can’t take group life insurance with you when you leave a job, which could leave you unprotected.
- These plans tend to be one-size-fits-all, and they typically cover only one to three times your salary.2 While this amount is enough for some, for many, it isn’t.
How much life insurance do I need?
The amount of life insurance you should have depends on the total income to be replaced and expenses covered to help meet the financial requirements of those you leave behind. Look at ongoing expenses like day care, tuition, rent or a mortgage, plus medical bills, burial costs, estate taxes and other immediate needs. There are also long-term financial goals to consider, such as saving for college educations and retirement.
Most insurance professionals recommend having a policy worth from seven to 10 times your annual income.3 Use our needs calculator to figure out how much life insurance is right for you.
What types of individual life insurance are available?
There are two main types of individual life insurance: term life and whole life. It’s best to have a combination to handle short- and long-term needs. Both offer a lump-sum payment to your beneficiaries in the event of your passing.
- Term life insurance protects you for a set number of years. Benefits are paid under in-force policies if the person insured passes away during the coverage period. It can be a good option for someone needing it only while there are dependent children, for example.
- Whole life insurance lasts your entire life. In addition, your premiums never increase, even as you age or face health issues. Whole life policies also build cash value, which you can borrow against for emergencies. Whatever you borrow is subtracted from the death benefit. Whole life is a great policy to pay for funeral expenses, remaining hospital or nursing home bills, or any end-of-life expenses.
Having multiple life insurance policies can help you tailor your coverage to your family’s evolving needs. It gives you peace of mind that anyone who relies on your income is supported financially, while also providing lifetime coverage to benefit your loved ones in later years.
When should I buy my own life insurance?
The sooner the better. Your rates are usually the lowest the younger and healthier you are. And remember, once you lock in a premium, it won’t change for the term of the policy.
How long you plan to stay in a job is another important consideration when all you have is employer-sponsored life insurance. Say you were 25 years old when you started and you’ve been there 15 years. You’ve gotten married in that time, or had children, and your insurance needs have changed. If you leave now, all of a sudden you may have no coverage. And you’re older, making it more expensive to buy your own policy. It makes sense to take advantage of the life insurance your employer provides while also looking for your own individual insurance policy that will be there regardless of your employment status.
A key advantage of life insurance is that the benefit is guaranteed not to change as long as you pay your premiums. While this offers some security, you should check your coverage as your personal circumstances evolve. And life changes aren’t always as obvious as a marriage or a new child. Sometimes, a simple shift in income can cause you to reevaluate your protection. Review your policy whenever you experience a major milestone in your life to make sure you’re always properly covered.
Do I need life insurance at all?
Life insurance may not seem necessary if no one currently depends on you financially, you have no major debts, and you don’t expect your status to change in the future. But you may have more to protect than you realize. For example, if you have a private student loan that someone cosigned, a mortgage or a credit card balance, those you leave behind could be burdened with your debt if you were to suddenly pass away. Life insurance can help your beneficiary(ies) pay off these amounts.
And remember, the younger you are, the more affordable life insurance can be. Will you need coverage five years from now? Locking your premium in while you’re younger and (usually) healthier can save you money over time.
Does my employer-provided life insurance go with me when I retire?
Not necessarily. In most cases, your policy terminates when your employment ends.
1 2022 Employee Benefits Survey, Society for Human Resource Management.
2 Why Relying on Life Insurance From Your Employer Can Be a Bad Idea, Monster, 2017.
3 What You Should Know About Buying Life Insurance, American Council of Life Insurers, 2022.