Should You Rely on Employer-Provided Life Insurance?

How Life Insurance Works

Who wants to think about their own mortality when you just got a new job with an exciting company and things are looking up for your career? To be fair, most people would prefer to never think about when they might die and what would happen to their loved ones if it happened earlier than anticipated.

However, confronting the reality that humans simply don’t live forever is an unfortunate part of life, especially when you have financial considerations to make, such as deciding on a new life insurance policy. If you don’t currently have your own life insurance plan and your employer offers free coverage, why wouldn’t you want to take advantage of that amazing offer? Free insurance and financial protection for your dependents? Who could possibly argue this is a bad deal?

Here’s the thing: employer-provided life insurance isn’t bad, per se, but it does tend to trick many people into believing they have enough insurance to cover their financial obligations and protect their family’s finances in case of their untimely demise. The fact of the matter is that employer-provided life insurance is rarely sufficient to cover everything you need (e.g., funeral expenses, debt repayments, lost income for your family, etc.).

If you’ve considered getting life insurance through your employer, then you should certainly do so (especially if the policy is free-of-charge for you), but you should get another life insurance policy to fill in the coverage gaps. To uncover how much life insurance you need through employer-provided life insurance, on your own, or both, let’s explore this common employee dilemma more in-depth.

Does Your Employer Offer Life Insurance?

First off, does your employer even offer employer-provided life insurance? Large companies with efficient human resources departments tend to mention life insurance coverage in the new employee onboarding orientations, but even if this doesn’t apply in your circumstance, you may have access to life insurance through your employer without realizing it.

To see what life insurance options are available, contact your HR department to inquire about employer-covered plans. Many employers provide life insurance free-of-charge (it’s a useful tax deduction for business expenses), but you may find that your employer only subsidizes (partially pays for) life insurance premiums or they make employees pay the full cost of monthly premiums. Figuring out what type of life insurance (if any) is offered should be your first step, followed by calculating how much coverage is provided to employees.

How Much Life Insurance Do They Offer?

Next, ask your employer how much they offer in terms of employer-provided life insurance. Some may offer $25-50,000 (or one year’s salary) and charge employees extra for additional coverage. Some may offer any amount, except the employee is responsible for paying 100% of their monthly premiums (contrary to popular belief, group insurance policies aren’t always cheaper than private insurance you could get elsewhere).

Some employers may offer as much as $100-200,000 life insurance coverage. This sounds like a ton of money, but if you have leftover debts (especially student loans, which can’t be discharged), a mortgage, a spouse and/or dependents (e.g., children or aging parents reliant on you for care), then low six-figure life insurance might not be enough to cover all of your financial obligations in case of your early demise. Estimate your term life insurance rate with Haven Life.

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What If You Quit or Get Laid Off?

If you quit your job, get fired or the company closes its doors, what will happen to your employer-provided life insurance? In many cases, the employee loses employer-provided coverage after their employment is terminated for whatever reason. This is why getting your own life insurance policy is so advantageous: access to lower rates while you’re still young and healthy without the risk of possibly losing coverage if you ever leave the company.

Some employers may let you continue your life insurance policy after your time working there comes to an end, but you’ll be responsible for paying the premiums, which could be overpriced in comparison to other private life insurance options available.  

How Much Life Insurance Coverage Do You Need?

Based on your lifestyle, personal health, debts, and number of people dependent on your income, how much life insurance do you really need? A general rule of thumb is at least 10-12x your annual salary, so $500,000 if you’re married with no kids and make $50K per year or $1.2 million if you’re married with two young kids and make $100K per year.

The more dependents you have, the more money you need from life insurance. A single, childless woman with a paid-off mortgage and no debts may need $100,000 (to cover funeral expenses and perhaps leftover medical bills). Meanwhile, a family consisting of a sole breadwinner, stay-at-home parent and three young children may need 15x the breadwinner’s annual salary to ensure their family is financially secure (which also includes money for their kids’ education in the future).

Should You Get Another Life Insurance Plan?

If you’ve been relying on your employer’s life insurance plan or you were hoping your new employer’s life insurance coverage would be enough, chances are you’ll need to get another life insurance policy to cover all your bases.

There’s no problem with opting into employer-provided life insurance if they’re willing to cover the premiums for you, but this shouldn’t serve as an excuse to avoid supplementing your employer’s plan with your own life insurance policy on the side.


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