Group Life Insurance Through Work: Is It Enough?

by Cristy Lynch | November 22, 2017

If your employer offers life insurance, it’s easy to check the box and assume you’re good to go. But are you? There are lots of pros to group life insurance plans. Often

If your employer offers life insurance, it’s easy to check the box and assume you’re good to go. But are you?

There are lots of pros to group life insurance plans. Often they’re inexpensive—some employers even cover 100% of the premium. After the open enrollment period ends, you probably won’t think of life insurance again. That is, until open enrollment next year. ‘Tis the cycle of life (insurance).

However, there are several reasons why you should consider purchasing your own life insurance policy outside of work. But first, the basics.

Getting Life Insurance Through Work

A recent report found that 59% of workers have access to life insurance coverage through their employer. While this benefit isn’t as common as medical and dental benefits (or fun perks like a kegerator or ping pong table in the break room), it’s a must-have benefit for those who would likely not consider purchasing a life insurance policy at all.

A basic group life plan may offer a small amount to you, the employee, for free. All you have to do is opt in, and your employer covers the cost. If this is the case, take it. There’s no reason not to. Check. That. Box.

If it isn’t free, basic coverage is cheap and automatically deducted from your paycheck.

The basic coverage is typically between $25,000 and $50,000. Some policies may even offer one year’s salary. This amount would go to your beneficiary tax free in the event of your death (knock on wood that’s not anytime soon).

So what’s the catch?

Limitations of Group Life Insurance

While life insurance through your employer is easy and convenient, it’s not necessarily the right solution. Here’s what you need to consider.

Basic Group Life Coverage is Likely Not Enough

If you’re single, young and have no assets or debt, a policy with $25,000 in coverage is probably fine. However, if you have a spouse, children, student loans, mortgage, auto loans, credit cards or any other debt, that $25,000 check will quickly disappear.

Your Spouse Might Not Be Covered

Sure, you’re good, but what about your spouse? Even if you’re able to add your spouse to your employer’s group life insurance plan, chances are the coverage is not enough – as in $25,000 to $100,000 if you’re lucky – and at an additional cost, too.

Additional Insurance Coverage Can Be Expensive

Supplemental group life insurance is an additional amount of coverage that you can purchase through your employer plan. This can be three or four times your annual salary, maybe even more. You’ll likely need to fill out an Evidence of Insurability form and perhaps undergo medical tests.

Your employer’s plan might be the most convenient, but it’s probably the most expensive, too. Compare quotes from other insurance companies before signing up for supplemental life insurance at work.

How much life insurance coverage you’ll need is a personal choice. Some experts recommend 5-10 times your annual income, but those policies will be pricey and your monthly premiums will be high.

You Can’t Pick Your Insurance Company

With an employer plan, you’re at the mercy of whatever insurance company they have chosen to work with. Shopping around gives you freedom to choose from a variety of insurance policies and insurance carriers. You can even pick your own budget.

Good to know: Before purchasing any type of life insurance, you should research that company’s financial strength (A.M. Best is a great, free resource). A poor rating means that company might not be around long enough to even pay out a claim to your beneficiaries. No bueno. In case you’re curious, Bestow’s insurance partners are rated A+ (Superior) by A.M. Best.

Lose Your Job, Lose Your Coverage

The days of working at one company until retirement are long gone. There are lots of reasons why you may leave your job. And hey, we’re not here to judge. If you do leave, you can’t keep that insurance policy. Even if you are able to, the premiums that were once paid for by your employer are now your responsibility.

And like other types of insurance policies, you don’t want to have a lapse (or gap) in coverage.

While a group life insurance policy through work is a great start, it shouldn’t be your only financial protection for your dependents. Purchasing your own life insurance policy is your best bet to get custom, personalized coverage. But buying one shouldn’t be a chore either.