Is Your Workplace Life Insurance Coverage Enough?

Many companies offer incentives to their employees as part of an employment package. These benefits may include things like healthcare, contributions to retirement savings, gym memberships, and even group life insurance coverage. 

A life insurance policy provided through the workplace can be an excellent way to protect your loved ones, but it comes with a few very important caveats. And in many cases, this coverage might not be sufficient on its own.

This bears the question: if you get life insurance through your company, do you still need to purchase an individual life insurance policy? Or is your workplace coverage enough?

When an employer offers life insurance policies through the workplace, it is typically part of what’s called a group plan. This means that the company receives special rates in exchange for enrolling a large number of workers, and they can pass these savings on to their employees.

Group coverage through the workplace is generally offered from specific insurance carriers. There may even be limits on the types of coverage available as well as the coverage limits available. Some employers will allow employees to add coverage for spouses and/or children, while others only offer coverage to the employed individual.

There are many great benefits to buying life insurance coverage through your company.

As mentioned above, employer-provided life insurance can generally be purchased at a rate that is lower than what you could get on your own. That’s because group coverage typically qualifies for volume discounts, since it’s being offered to a large number of employees at the same time. In some cases, your employer may even offer to pay the premiums for this policy.

Another benefit to workplace life insurance is that (link: leaplife.com/what-do-life-insurance-medical-exams-look-for text: medical exams) are generally not necessary. These policies are usually considered “guaranteed issue,” making them accessible to employees who might not otherwise qualify for affordable coverage due to age, past health concerns, certain medical diagnoses, or even family medical history.

As convenient and affordable as purchasing employer-provided life insurance coverage can be, though, there are definitely drawbacks to keep in mind.

Coverage limits

The first downside is that employees are usually limited in the amount of coverage they are able to choose a workplace policy. This is often calculated as a multiple of your salary; for instance, an employer may allow you to purchase no more than five times what you make annually. 

For some, this might be more than enough coverage. Others may need more life insurance, though, allowing them to replace their income for longer and better protect their loved ones. If this is the case for your family, workplace insurance alone won’t be sufficient.

Policy features

Employees may also be more limited in the carriers, policy types, riders, and optional coverages available when buying through an employer, versus shopping around for a private policy. If you’re looking for a policy that allows for spouse/child riders, disability or accelerated death benefits, or whole life conversion, for instance, a workplace policy may not meet your needs.

Rates

When you purchase an individual term life insurance policy, you are locking in your coverage and premiums for the policy term. Whether you opt for five years or 30, your monthly rates will not increase for that specific coverage, no matter your age, health, etc.

With group workplace policies, however, premiums are calculated by the composition of the group itself. Carriers will look at a number of risk factors, such as median age and occupation risk, to determine how much each member of that group will pay. This means that from one year to the next, premiums can change and you may find yourself paying more for the same coverage.

Some groups also have bracketed premiums based on factors like age. So even though you’re part of a group life insurance plan, you’ll still pay more for coverage the older you get.

Portability

The last (and perhaps most important) downside to employer-sponsored coverage is the fact that workplace life insurance does not follow you when you leave a company. 

If you are fired, laid off, choose to change jobs, or even retire, your employer life insurance coverage will usually end. Whether the shift in jobs is a planned choice or sudden and unexpected, losing the protection of a life insurance policy can be detrimental to your family. And depending on your individual circumstances, it may be difficult to quickly purchase replacement coverage.

In rare cases, your employer coverage may be portable, allowing you to take your policy with you even after you leave your job. However, the cost of this coverage will almost always increase significantly.

Life insurance coverage through an employer can be an easy, convenient, and affordable way to protect your loved ones. But the reality is that for many, this coverage probably isn’t enough.

Your best bet may be to shop around and purchase an individual life insurance policy, which can be held in addition to any workplace policies that are offered to you over the course of your career. Whether you purchase term or whole life coverage, this policy can protect you for decades to come no matter where you move or choose to work… and your rates are locked in!

Additionally, buying individual life insurance allows you to purchase a policy with the exact coverage, term limits, riders, and additional benefits that you want. And buying early — before you get older or develop new medical conditions — enables you to protect your family sooner while also locking in the best possible rates.