What Is Employer-Provided Life Insurance Coverage?

Video Transcript

Today, we're exploring a benefit many of us might overlook but could be important in our lives—employer-provided life insurance. This type of life insurance, often referred to as group life insurance, is a policy purchased by an employer to cover its employees. Typically, the company pays for a base amount of coverage that may be a multiple of your annual salary, often one or two times that amount. Some employers offer a base amount of this type of life insurance at no cost to employees and may automatically enroll you on your first day of eligibility.

Here's how it generally works. Typically you are automatically enrolled upon employment once you meet the eligibility requirements. The policy amount is usually a function of your salary. For instance, if you earn $50,000 a year, your policy might be worth $100,000. Then, in the event of your passing, as long as everything is in good standing, the policy pays a death benefit to your designated beneficiaries, just like other types of life insurance.

The benefits of this type of insurance include cost efficiency. It's often free and provided as part of your employment package. Next is ease of access. Enrollment is generally straightforward with many plans featuring automatic enrollment—though some may require a brief medical exam or questionnaire. And lastly, additional coverage options. Often, you can buy additional coverage through payroll deductions at rates that might be more favorable than individual rates. This makes employer-provided life insurance an excellent base for your life insurance needs.

However, there are some limitations and important considerations. First the coverage amount may not be enough to meet all your family's needs, especially if you have a mortgage or significant debts. Next is portability. If you leave your job, you might lose the coverage. Some policies allow you to convert to a private plan but expect higher premiums and possibly limited policy options. Lastly, dependency on employment. This can be risky if your health declines and you find yourself without a job and needing to get insurance. It's crucial to assess your total insurance needs and consider an individual policy to supplement your employer-provided coverage.

To make the most of your employer provided life insurance, understand your policy. Know what's covered and what's not. Next assess additional needs. Calculate if you need more coverage and consider buying additional insurance. Also, keep beneficiary information updated. Life changes, so ensure your policy reflects current beneficiaries. And don't forget, regularly reviewing your life insurance situation is important as your life grows.

Thank you for tuning in to learn about employer-provided life insurance. We hope this video has helped clarify how this benefit works and help ensure you and your loved ones are adequately protected.

Like many Americans, you likely have a life insurance policy through your work, and you may not think about it very often. Company-paid life insurance is a popular and valuable employee benefit. In many cases, you can receive discounted or free coverage through these programs. At first glance, getting basic life insurance through an employer may seem like a great benefit.

However, relying only on employer life insurance can have drawbacks that are important to consider. Depending solely on this coverage could leave your beneficiaries and loved ones with less protection than they need. It may be a good time to review your coverage and consider your personal needs.

In this article, we'll look at the potential challenges of relying exclusively on employer-sponsored life insurance and review important considerations at different stages of your career. Here's what you should know about employer-paid life insurance policies and what to consider as you evaluate your options.

Employer-Provided Benefit Explained

When you receive life insurance coverage through work, it's also called group life insurance. Employers typically offer this benefit at no cost or a low cost to employees. For many people, employer-provided life insurance is an easy way to get coverage with little or no expense. Research from the Bureau of Labor Statistics shows that about 72% of private-sector employers offer group life insurance, and 73% of employees enroll in it.¹

While this is a good starting point, some people run into problems because they assume their work coverage is enough. It is easy to think you do not need additional coverage if you already have life insurance through your employer. However, as your career progresses, you may need more coverage than your employer provides, especially after getting married or having children.

The Trouble With Employer Life Insurance

When you receive life insurance coverage through work, you do not own the policy. Your employer does. If you quit or lose your job, there is no guarantee that you can keep your coverage. While some companies allow you to keep your policy, others cancel coverage for former employees. This means workplace life insurance is generally temporary coverage.

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 are excited to get baking. Your employer, while sad to see you go, does not allow you to keep your life insurance policy after you leave. Would your family or other loved ones have financial protection if you were involved in a fatal accident after your coverage expired?

Even if you qualify, you will be purchasing a new policy at the age you are when you leave your job. Life insurance generally becomes more expensive as you get older. That means it may make sense to consider a personal policy sooner rather than later.

Another challenge with life insurance through work is that there is often not enough coverage. These programs usually have a maximum coverage limit, which is often equal to three years of salary. If your family depends on your income, you may need additional coverage to help protect them.

Starting Your Career

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

A common myth is that the life insurance policy provided through work is all you need. In the future, you may need additional coverage beyond what your employer-sponsored life insurance provides. You could secure a policy today that lasts throughout your career, even if you change jobs, as long as premiums are paid. This may also be a good opportunity to qualify for lower rates while you are still young and healthy.

Mid-Career

As you move further along in your career, you may outgrow the life insurance coverage provided by your employer, especially after you get married and have children. Some people run into problems because they assume their workplace coverage is enough. Since they already have life insurance through work, they may not think they need additional coverage.

Leaving this up to chance could create gaps in your coverage. You may need more coverage than your employer offers and could use an individual policy to help cover the difference.

Nearing Retirement

As you get closer to retirement, you may need less life insurance coverage because your children are grown and your mortgage may be nearly paid off. Your employer-sponsored life insurance may be enough at this stage of your career, but remember that this coverage may be temporary. Workplace policies are typically term life insurance policies that end when you retire or reach a certain age limit. After that point, you may no longer have life insurance coverage.

If you would like a policy that continues to help protect your loved ones, you may want to consider adding a permanent life insurance policy that can last your entire life. Keep in mind that it is generally less expensive and easier to qualify for coverage when you are younger. Establishing life insurance coverage now may cost less than waiting until after you retire.

Is Employer Life Insurance Enough for Your Spouse's Coverage?

One of the main benefits of a life insurance policy is that it provides a death benefit to your loved ones that can help cover their financial needs. Review your policy limits and determine whether your death benefit would provide enough money to help your spouse pay for burial expenses, cover existing debt, and manage future bills, such as mortgage payments. If it's not, you may want to consider supplemental life insurance.

Even if you have enough employer-sponsored life insurance, remember that your coverage is likely temporary. If you suddenly lose your job, you could be left without insurance coverage, which may leave your family financially vulnerable. Another factor to consider is what could happen if you voluntarily change jobs later in your career and cannot take your policy with you. Your income may be significantly higher by then, which could increase the amount of coverage you need. You may also develop additional health conditions that could require a medical exam or even lead an insurance company to deny coverage that fits your budget.

How Much Supplemental Life Insurance Do You Need?

If your family depends on your income, you may need additional coverage beyond your employer-provided life insurance. No matter where you are in your career, a supplemental life insurance policy may be worth considering because it can provide added coverage and give you more control over your family's future needs.

Meeting with a financial representative to review your situation may help you determine which coverage options are right for you. They can review your numbers and help calculate how much additional coverage may be needed to support your family after your death.

Final Thoughts

Consider the types of life insurance policies available to you. Whole life, universal life or term life insurance are all options that may be a good fit for your supplemental coverage needs. This approach allows you to view your employer-sponsored coverage as a supplement to your personal life insurance policy rather than relying on it as your only source of coverage.

Sources

1. Employment Situation Summary. https://www.bls.gov/news.release/pdf/ebs2.pdf