We have all had a job that offers life insurance coverage.
Is it a good idea?
Yes and No.
We’ll explain why…
On the surface, it seems like a nice gesture, and a great way to get some solid life insurance coverage if you do not have any.
However, there are occasions where life insurance through your work is not enough coverage, and can even be harmful to people in certain situations.
Understanding the life insurance policy that your employer offers you is essential to ensuring that you have the right amount of life insurance coverage you need for your family in the event of your untimely death.
The Goal of this Article
We wrote this article to help you understand the differences between employer offered life insurance, some of the common gaps in employer life insurance coverage, and some major reasons to consider additional life insurance coverage if you have life insurance through your work.
We also answer some very common questions we get asked often that can help you understand your employer life insurance and determine if you need additional coverage for you and your loved ones.
Before we take a dive into this article that outlines everything you need to know about whether life insurance through your work is enough, let’s take a second to outline what we will cover in this article:
What you will learn in this article (click to go to section):
What Life Insurance Coverage Through Your Work Typically Entails
When your employer provides you with life insurance coverage, they will provide you with either supplemental group life insurance or basic group life insurance.
Supplemental Group Life Insurance
This is life insurance protection that is meant to act as a supplement to your existing coverage. As the name entails, this is not meant to be a primary form of life insurance to begin with. While some of the benefits are certainly helpful, there are a lot of coverage gaps, and the amount of supplemental group life insurance coverage you are able to get through your employer is usually rather small.
Basic Group Life Insurance
This is the most basic version of life insurance offered by employers. This type of employer life insurance is offered at no additional cost for coverage, which is a great perk to some jobs for people who have not yet given thought to life insurance coverage.
But don’t let this fool you, basic group life insurance is usually as the name implies – basic coverage. You may have a few thousand to $100,000 in coverage, but likely no more. This is great for basic life insurance coverage, but depending on your financial and family situation, it may not be enough for you.
Policy Riders and Provisions
Typically, these life insurance policies offered through work come with the following policy riders (add-ons that give additional life insurance coverage for specific situations):
1. Accidental Death & Dismemberment
This is protection that pays out if you are accidentally injured or killed. The qualifying accidents that are specified by each policy and proof of injury and disability must be made in order for payout.
Coverage may be limited and so may the payout, so make sure to read the fine print or work with an expert when considering additional life insurance to add to your policy offered through work.
For dangerous occupations, this rider can make a huge difference to you and your family’s financial situation in the event that you are disabled or killed on the job.
2. Burial Insurance
This type of life insurance coverage offered through work is strictly for covering the costs of final expenses and burial in the event of your death.
Typically, burial insurance coverage from employers ranges from $5,000 to $10,000, which is enough to cover a basic funeral with an average cost of $7,000 to $10,000 in the United States.
Most life insurance coverage offered by employers is non-portable, meaning that you cannot take coverage with you if you are laid off, fired, or change positions. This is a huge factor to look out for because if something were to happen and you lost your job, you may no longer have much-needed life insurance coverage for your loved ones anymore.
4. Spouse and Domestic Partner Insurance
This type of life insurance is also sometimes offered by employers. It protects your spouse in the event of your death with a benefit. This figure is typically low on both supplemental group life insurance and basic life insurance.
Again, it is important to read the fine print in order to make sure that your spouse or partner is properly protected by your employer offered life insurance coverage.
You want to make sure the life insurance coverage your work offers is best for you and if you need additional coverage.
So at this point, you may be asking,
“Do I Need Supplemental Life Insurance With My Life Insurance Through Work?”
It depends on what product your employer has chosen.
This will control:
- The amount of money that employer offered life insurance policies cost you
- The length of time for which they remain in effect
- The benefits you receive
It is in your best interest to review the fine print associated with the policies that you were given.
Many people who have life insurance coverage through their work do not even know what the policy covers or how much coverage they have.
This is not ideal.
They also have very little knowledge about the ways in which their employer’s life insurance coverage may be voided.
To display the gaps in coverage of life insurance coverage offered through work; the Bureau of Labor Statistics reports that while 94% of companies in the US reported offering some form of supplemental group life insurance to their employees, it is estimated that only about 18% of these employees feel comfortable with their coverage, and have an understanding of what it is, and what it entails.
This is not good.
With something as important as the financial future of your family, you want to be sure the life insurance that your work provides is enough or not.
To help you truly answer this question of whether the supplemental insurance with your work is best for you, let’s take a look at some of the common problems that people experience with life insurance through their work.
Common Problems With Life Insurance Through Your Work
There are plenty of problems associated with life insurance obtained through your place of work.
1. Employers Do Not Offer Enough Life Insurance Coverage
The biggest issue people run into is that they simply don’t get enough life insurance coverage through their work. Often times, life insurance coverage offered through work is limited to very small face amounts, usually $100,000 or less.
While this sounds like a lot, when it comes to life insurance, it really is not enough for almost anyone with a mortgage payment. When you pass, your existing debts are passed on to your remaining family members. This includes mortgage, car loans, student loans, credit card debt and other outstanding debts.
For people with a mortgage, and a few car loans, this $100,000 simply will not do. Not to mention trying to plan for income supplementation for your family in the event of your death.
2. One Size Fits All Coverage
Your employer is not going to be able to change what you get or give you the same flexibility that a private life insurance provider would. Basically, you get what you are given and you have to be grateful for it.
Unfortunately, this can leave a serious gap between your employer offered life insurance coverage and the amount you really need.
In some situations, your family might grow long after you start working at a new company and your financial needs increase with that expansion but your life insurance coverage doesn’t.
3. Life Insurance Through Your Work May Be More Expensive
The cost of life insurance offered by employers is also problematic for many people. In some cases, the cost of group life insurance policies might be more than what you would get on your own for a variety of reasons.
To start, when you are evaluated singularly, the amount of life insurance coverage you are offered through your work has to do only with your situation and your health, not that of an entire company or an entire group.
As a group, your premiums will be higher because those in poor health may weigh in on the average cost, causing your rates to increase to cover the additional risk of the group.
4. Coverage Only Lasts as Long as You are Employed with them
In plenty of cases, individuals who only get life insurance through their employer seem perfectly happy with that coverage until they no longer have a job.
This is showcased on the news only in the event of a mass economic downturn when hundreds upon thousands of people have the same story but the problem is that story happens every day.
You might not stay with the same company you start with for a variety of reasons.
With the average duration at a job being about 4.2 years in the US now, chances are you will not be with one or two companies for your entire career as your parents were.
As a result, you want to look for supplemental life insurance coverage for your employer offered coverage as your family grows.
Just because your career changes does not mean you should lose life insurance coverage for you and your family. You want coverage that can stay with you through your life and its various stages.
For this reason alone, supplementing life insurance from your work with additional coverage should be a necessity in today’s age.
5. Limited Coverage Options
Not every employer allows you to get life insurance coverage for your spouse let alone for your children. For most people, this just isn’t practical.
If you have a family to support, it is in your best interest to take out a policy that includes coverage for them simply because it is going to be significantly less expensive for you to take out a policy that covers both you and your spouse compared to you and your spouse obtaining separate, individual policy.
The reason for this is that life insurance companies typically charge a certain amount for every $1,000 in coverage. You can take out a single policy for $500,000 and add the spousal benefits so that you are both covered with the same amount and it is much more affordable.
Supplementing your employer offered life insurance with additional coverage can actually save you thousands while simultaneously offering your family better coverage!
6. Coverage Changes With Your Health
Due to the fact that most of the policies provided by employers are term-based policies if your health declines at any point your rates will increase substantially.
This often leaves people who rely on work for life insurance in a sticky situation if a sudden health problem arises and they need coverage.
If you were to take out a policy on your own, you could obviously find the best policy for your situation and lock in your rates for the rest of your life, or for a 30-year term, with the ability to renew or convert the policy without additional medical exams which could increase your rates.
Why You Should Supplement Your Life Insurance Through Work – Horror Stories
These horror stories about people losing life insurance coverage or not having the right type or amount of life insurance coverage through their work serve as great examples of just what can happen when you rely on your employer for life insurance coverage and do not consider supplemental life insurance coverage for your work employer offered life insurance policy.
Lack of Spousal Life Insurance Benefits Leads to Financial Tragedy
A husband and wife started a family after the husband was promoted. The promotion required the whole family to move to a different state as he started to run a new office.
With this promotion came fringe benefits like health insurance and life insurance. But the problem was that life insurance policy did not extend to his wife or his children.
This particular individual didn’t seem too concerned about that because both were in perfectly good health. But then the unexpected happened.
His wife’s heart gave out with no warning. She quite literally dropped dead one morning while taking the children to school.
He had to use all of the money he could from his savings, from his stock portfolio, and from his retirement to not only cover her funeral cost but to compensate for the increased expenses the family now face.
His wife was in charge of running the house. She took care of the children and now the man who commuted 2 hours each way, every day of the week for his 10-hour a day job had to pay for long-term child care for his children.
They had four children each roughly two or three years apart so some of them needed someone to drive them to school and pick them up, take them to rehearsals and so on. The others were young enough that they needed help getting ready in the morning, they needed a nanny to tend to their daily activities, help them with their homework, and of course chauffeur for them to and from school.
The cost was substantial and it drained everything this man had in his retirement fund.
By the time his children were old enough to move out they no longer had money to pay for their college tuition. The father had run so far into debt as a result of not having life insurance on his wife that he had to sell off some of the cars which were intended for the children as they got older. He couldn’t help them pay for school-related things or send them to the university they wanted.
Health and Location Changes Lead to Lapse of Coverage
In another case, a husband and wife both contributed to the household income. Both of them had life insurance policies through their respective employers but one of the spouses was a teacher and only had limited coverage.
When she moved to a new District, that coverage changed and she didn’t have any control over the policy she was given. Unfortunately, the reason the family moved to a new city was that his wife recently started passing out.
Doctors found out that she had tachycardia and bradycardia, so she needed a pacemaker. And as a result of her passing out, she now had a crack in her anatomy and was leaking fluids. They had to move to a new city with better physicians.
Unfortunately, because she was changing school districts and receiving a new company issued life insurance policy her changes in health caused the coverage cost to increase so much that she couldn’t afford it anymore.
Now the husband is the only one with life insurance and his company won’t let him add the wife to the coverage and they have to decide what steps are in their best interest financially.
What Should I Do To Make Sure I Have Supplemental Life Insurance Other Than My Employer?
We all hope that horror stories like this never happened to us.
Unfortunately, there is no way to know what the future holds. The best solution is to keep your work policy but simply add a third party life insurance policy. By supplementing your life insurance coverage you can choose from different types of policies that best fit your situation.
If you are getting older and your health has changed, you might want to take out a supplemental life insurance policy so that you have permanent protection even if you have to leave your place of work.
You might want to add a shorter-term policy to cover the balance between what your current company issued life insurance policy would pay for and what your family needs.
If you only have some car loans and a mortgage but your company issued life insurance isn’t substantial enough, you won’t have to take out an incredibly expensive policy to supplement that. A moderate policy will do just fine.
You can take out a whole life insurance policy that stays in effect for the rest of your life or you can take out a term policy which only exists for a certain length of time based upon the length of time your financial requirements exist.
Supplemental Life Insurance Policy Options
There are mainly two types of life insurance:
- Term Life Insurance
- Permanent Life Insurance
Term Life Insurance
Term life insurance is protection that lasts a certain period of time, usually 10, 15, 20, 25 or 30 years. This type of life insurance policy is the cheapest type of coverage. It has plenty of policy riders and add-ons available based on the company and policy you choose which can help further supplement your work life insurance coverage.
- Term is the cheapest form of life insurance
- Terms that last a specified period of time
- Can layer coverage to vary throughout your life
- Can be converted into a permanent life insurance policy or renewed
- Coverage does not last your whole life
- Term policies do not usually have as many available riders
- Term policies do not accumulate cash value over time
Who term life insurance is best for:
Term life insurance is best for people who are looking to supplement their life insurance coverage through work for a certain period of time (such as until they retire, pay off a mortgage, or their kids are out of the house). It is also best for people who cannot afford a permanent life insurance policy, or who do not feel the need for permanent coverage.
Permanent Life Insurance
Permanent life insurance coverage is life insurance that lasts for your whole life or until the maximum policy age (usually 95, 101, or 121 depending on the policy and the company). This type of life insurance policy accumulates cash value over time from the premiums you pay in, which can be borrowed against tax-free.
- Life insurance coverage for your whole life
- Accumulates cash value over time
- Far more expensive than term life insurance
Who permanent life insurance is best for:
Permanent life insurance is best for someone who is looking for a lifelong form of life insurance, who has the money to afford the higher monthly premiums. This type of life insurance is also best for someone who is looking to plan for an estate or a trust in the future.
Guaranteed Universal Life Insurance
Also known as “no-lapse” guaranteed universal life insurance is sort of a hybrid between term and permanent. The coverage will last for life, up to age 121, yet it does not have the cash accumulation aspect of whole life products.
GUL policies function more like term insurance because they are “pure” life insurance. We’ve reviewed the best companies offering guaranteed universal for 2019.
How Much Does Supplemental Life Insurance Outside Of My Employer Cost?
Because there are many types of life insurance policies you can use to supplement your existing coverage through your work, there are many rates you can expect to see depending on company, policy and your personal health factors.
Overall, life insurance rates are affected by:
- Family History
A few other factors go into the cost of your life insurance, but these are the main ones. Depending on the company and the policy you choose, these rates may not apply.
|Age||Policy Type||$100,000 Male (monthly)||$100,000 Female (monthly)||$500,000 Male (monthly)||$500,000 Female (monthly)||$1,000,000 Male (monthly)||$1,000,000 Female (monthly)|
|30||10 Year Term||$7||$6||$13||$12||$20||$18|
|30||20 Year Term||$9||$8||$20||$17||$34||$29|
|30||30 Year Term||$13||$11||$34||$28||$60||$50|
|35||10 Year Term||$7||$7||$14||$13||$22||$20|
|35||20 Year Term||$9||$8||$22||$19||$39||$33|
|35||30 Year Term||$14||$12||$39||$33||$70||$59|
|40||10 Year Term||$8||$8||$19||$17||$30||$28|
|40||20 Year Term||$11||$10||$31||$27||$58||$47|
|40||30 Year Term||$19||$16||$58||$45||$108||$85|
|45||10 Year Term||$11||$10||$30||$26||$50||$44|
|45||20 Year Term||$17||$14||$52||$41||$95||$75|
|45||30 Year Term||$26||$21||$89||$68||$171||$130|
|50||10 Year Term||$15||$13||$46||$37||$83||$67|
|50||20 Year Term||$24||$19||$82||$$61||$155||$112|
|50||30 Year Term||$41||$31||$140||$107||$270||$206|
|55||10 Year Term||$20||$18||$76||$55||$141||$101|
|55||20 Year Term||$36||$27||$133||$97||$255||$181|
|55||30 Year Term||$73||$57||$271||$194||$534||$381|
Why You Should Look For Supplemental Life Insurance Coverage Immediately
It is in your best interest to search for coverage immediately because so many things can go wrong and it truly is best to be prepared than to find yourself stranded without the financial resources you need.
You want to create an estimate for how much coverage you currently have with your employer and how much you’re going to need total to cover all of your costs. You can work with a third-party agent to help you calculate this so that you don’t make any mistakes.
Other Frequently Asked Questions About Supplemental Life Insurance
Should I Get Supplemental Life Insurance Through My Work?
You shouldn’t get supplemental coverage through your job.
You already have coverage from your employer and if you want to supplement that you should seek an individualized plan. You can work with third-party agents and brokers to help you find the best supplemental coverage on the market.
Do you lose your life insurance when you leave your job?
This depends entirely upon the type of life insurance you have. If you have a life insurance policy that is tied directly to your being an employee and it isn’t permanent, then yes you will lose it. Check the fine print for your particular product.
How long do you have insurance after leaving a job?
This, again, depends entirely on the group policy. You’ll have to speak with your employer to figure out what the terms are if you don’t already know.
How To Find The Best Supplemental Life Insurance For You
When it comes to finding the best supplemental life insurance coverage for you and your loved ones, you first want to take the time to understand your existing coverage in order to know what you need.
You may be overwhelmed by all of the life insurance options on the market.
Don’t worry, we are here to help.
All we do is life insurance.
We know the questions and struggles you have and how to help you find the best life insurance coverage for you and your family.
Our independent life insurance agents work with some of the best life insurance companies on the market to help you find the best supplemental coverage for your family. Give us a call today or get started online.