Many employers offer some type of life insurance benefit to their employees. While this coverage can be good, it’s usually not enough.
There are a couple of types of life insurance that may be offered through your employer. Involuntary group life insurance covers every employee who meets certain criteria, such as being full-time. The premium is paid completely by the employer. These are group policies that typically provide a limited amount of coverage, usually between $10,000 and $50,000.
The major problem with this type of life insurance is that it is not yours to keep. A number of factors may cause you to lose involuntary coverage in a group plan. Terminating your employment, switching to part time, taking a leave of absence, or retiring can all cause you to become ineligible for the insurance. Also, during economic downturns it may be something that employers cut so they can retain other benefits.
Another issue with this kind of coverage is that it may not meet your needs. $50,000 of life insurance is a nice benefit to have, particularly if you don’t have to pay for it. However, it’s way below what the average person needs. It’s a nice bonus, but it’s just not enough.
Involuntary plans are also simple plans. If you die, they pay your named beneficiaries the death benefit, and that is pretty much all they do. Individual life insurance is highly customizable, with options to accumulate cash value, get some or all of your premium returned at the end of a term, and riders to advance some or all of the death benefit in the case of a terminal illness or long-term nursing home care.
The other type of insurance your employer may offer is voluntary payroll deducted life. This type of product may be more stable for you than the involuntary, because usually if you lose your employment you can choose to continue to pay the premiums and keep the policy. This is a great option if you may be difficult to insure for health reasons, because these policies are either guaranteed-issue or simplified-issue, which means there is no medical exam, and possibly just a few questions to allow you to purchase a policy. It is an easy way to get and pay for life insurance, since you are less likely to miss an automatic payroll deduction than payments you handle on your own. This is, however, not to your advantage if you are a relatively young, healthy individual, because you may be able to get a policy that is fully medically underwritten for a lower cost than what is offered by the employer.
In order to get the most out of your employer’s life insurance, first check what you have, then check what you may be eligible to purchase, and finally work with a life insurance agent to figure out what you may purchase privately to fully round out your future planning.
