Employer Life Insurance Coverage — Is It Enough?

Insurance
Woman gives a presentation to a group of her peers in a modern office: employer life insurance

Like many Americans, it's likely you have a life insurance policy through your work — and it's also likely you haven't thought much about it. Life insurance coverage through work is a popular and valuable employee benefit. Often, you can receive discounted or free coverage through these programs. It's a win-win benefit, right?

Well, relying solely on employer life insurance could have its downsides. It might be time to examine your coverage and think about your personal needs. We'll explore the potential problems of exclusively relying on employer-sponsored life insurance, as well as important life insurance considerations for different stages of your career.

The Trouble With Employer Life Insurance

When you receive life insurance coverage through work, you don't own the policy — your employer does. If you ever quit or lose your job, there's no guarantee you can keep your coverage. While some companies let you keep your policy, others cancel coverage for former employees. This means, more or less, workplace life insurance is temporary life insurance.

Let's imagine you have put in your two weeks' notice at work to pursue your dream of opening a bakery. Cupcakes and pastries are your passion, and you're anxious to get baking. Your employer, while sad to see you go, doesn't let you keep your life insurance policy after you leave. Would your family or other loved ones be financially protected if you were involved in a fatal accident after your coverage expired?

If your coverage expires and you want to stay insured, you might consider applying for your own policy. This could mean having to pass a medical exam, but there's no guarantee you'll qualify. Even if you qualify, you'll be buying a new policy at the age you are when you leave your job — and life insurance generally gets more expensive as you get older. That means it might be best to consider a personal policy sooner rather than later.

Another problem with life insurance through work? There's usually not enough coverage. Programs have a maximum limit to how much they'll cover, which is often three years' salary. If your family relies on your income, you may need more coverage to truly protect them. Consider the available life insurance policies — like whole life, universal life or term life insurance — to find the best choice for your additional coverage needs.

Starting Your Career

When you're young, single and just starting your career, chances are your current life insurance needs are not very high. Maybe you need a life insurance policy to cover your final expenses or debts. It's possible your workplace coverage is enough for your needs — for now. Of course, life changes quickly. Do you plan to get married or start a family someday?

In the future, you might need extra coverage beyond what your employer life insurance offers. You could lock in a policy today that lasts your entire career, even if you change jobs. This could also be your best chance to qualify for a low price while you're still young and healthy.

Mid-Career

As you move further along in your career, it's possible you'll outgrow the life insurance provided by your employer — especially after you get married and have children. People sometimes get into trouble because they assume their work coverage is enough. They already have life insurance at work, so they don't think they need anything else.

Leaving this up to chance could be risky. Instead, it might be helpful to conduct a financial needs analysis with a financial representative to calculate exactly how much life insurance you might need to fully protect your loved ones. You may need more coverage than is available through work and could use an outside policy to help make up the difference.

Even if you have enough employer-sponsored life insurance, remember that your coverage is likely temporary. You don't want to suddenly lose your job and be stuck without insurance, leaving your family unprotected. Consider buying your own policy, so your protection has a better chance of lasting — regardless of where you end up in your career.

Nearing Retirement

Once you get closer to retirement, you may need less life insurance coverage because your kids are growing up and you're close to paying off your home. Your employer life insurance could be enough for this stage in your career — but remember, your coverage may be temporary. Workplace policies are typically term life policies, which end once you reach a certain point. (Generally, when you retire or hit a certain age limit.) After that point, you may not have any life insurance.

If you would like a policy to help protect your loved ones, you could consider adding a permanent life insurance policy that would last your entire life. Remember, it is generally less expensive and easier to qualify for a policy when you are younger. It could be more cost-effective to set up life insurance coverage now compared to after you retire.

You could think about life insurance coverage through work as a nice addition to your life insurance policy, rather than the only part of your insurance policy. No matter where you are in your career, an outside life insurance policy could make sense — and help put you in control of your financial future.

IMPORTANT DISCLOSURES

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.

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