From the Learning Center

How Does Employer Life Insurance Work?

By the Bestow Team·November 14, 2022·5 Minute Read

In this Article

Life insurance is a contract between a person (the insured) and a life insurance company where the insured has a certain amount of coverage that their beneficiary would receive if they were to pass away while their policy was active, in exchange for a paid premium. Employer life insurance is a policy that some companies provide as a benefit for their employees. Employers who offer this benefit generally pay some or all of the premium for a term life insurance policy for their employees. How does employer life insurance work? How is it different from a life insurance policy you would buy for yourself? We’ll dive into that (and more)! 

Employer-provided Life Insurance 

If your company has employer-provided life insurance, you will see it in your company benefits packet when you join a company and when your annual benefits enrollment period comes around each year. This policy is often called the “master policy.” It is issued to the policy owner, which could be the employer, a union, an association, or a trust. There are several types of employer-provided life insurance: 

Basic term group life insurance: Policy coverage can be a set flat amount (i.e. $25,000 or $50,000) or salary-based (i.e., 1x your annual salary, 2x your annual salary). The term is generally as long as you are actively employed by the company offering you the benefit. 

Supplemental term life insurance: Some employer plans also allow employees to purchase additional voluntary coverage (i.e., 3x your annual salary) to add to the basic overage amount paid for by your employer. While basic life insurance premiums mentioned above may be paid for by your employer, you would likely be responsible for covering the supplemental premiums. 

Voluntary term life insurance: While supplemental insurance would add coverage to an existing policy provided by your employer, a voluntary life insurance plan allows you to purchase a policy for yourself– the employee– and/or life insurance policies for your spouse and children.

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Pros and Cons of Employer Life Insurance 

Great, your company offers employer life insurance! This is definitely a benefit you should consider. Read on to decide if you may want additional coverage or if your employer life insurance coverage is enough for you and your family. 

Pros of Employer Life Insurance 

Cost: Because companies purchase life insurance plans on a larger scale (for all their employees), premiums are generally discounted. If your company offers basic term life insurance as a benefit, it is often covered by your employer–making it free for you, the employee. If you choose to purchase supplemental insurance or voluntary insurance for yourself or your family members, the group discount may make the premium cost lower than if you were to purchase it on your own. 

Convenience: If group life insurance is part of your company benefits, then it is generally part of your standard new-hire paperwork or annual benefits re-enrollment documents – there’s no separate process and your company’s HR team is available to answer questions.

Qualification: Most employer-provided life insurance is guaranteed-issue, which means that no medical exam is required, and even those with health conditions can qualify for coverage.Cons of Employer Life Insurance 

Limitations: Insurance coverage is determined by your employer. You may not be able to customize the policy to suit the needs of your family – you’re limited to the company and plan available. 

Low coverage: Similar to above, because coverage is determined by your employer, the coverage amount may not be exactly what your family would need if you pass away. 

Portability: If you were to leave your job for any reason, your employer-provided life insurance may not be able to come with you. In some cases, you may be able to convert your plan from the group policy to an individual policy, but the cost of premiums could go up, and your age and health at that time would be taken into consideration. Employer Vs. Individual Life Insurance

Convenience: While your employer-provided life insurance can be obtained easily while enrolling in your company benefits package, applying for individual life insurance can take a little more legwork. Term life insurance is generally the simplest type of life insurance to apply for. Some companies allow you to get your quote and apply online and ask you some questions about your medical history instead of requiring a medical exam.Types of permanent life insurance can accumulate a cash value option, but they can have more expensive monthly premiums than term life insurance. It is a good idea to do your research to find the best type of life insurance for your needs. 

Options: Your employer-provided life insurance only offers the options selected by your company, so options are limited. Buying individual life insurance opens up a world of options for you. You can choose whether you’d like to purchase insurance for a number of years (term life insurance) or have life insurance that is designed to last your entire life (permanent life insurance). Each type has its benefits and drawbacks, so before you get started, decide how much coverage you need, whether you’d be willing to pay a higher premium each month in exchange for your account to include a cash value, and any other factors you may want to consider. 

Portability: Since group life insurance is provided through your employer, if you leave your job for any reason, like any of your benefits, it may expire. You would likely have to convert it to a different policy in order to take it with you. Individual life insurance is yours from the beginning. As long as you pay your premium, it stays with you for the length of the policy! 

Cost: Basic group term life insurance through your employer is often free to the employee. If your employer only offers voluntary life insurance that you would have to purchase, the discounted group rate could be cheaper than if you were purchasing it as an individual plan. Purchasing individual life insurance can have a wide range of premium options. Your age, health, coverage amount, and term length all factor in your term life insurance premium. The same factors can also feature into permanent life insurance (except term length), but the lifetime design of permanent insurance and the cash value component can make these monthly premiums more costly. 

Wrapping It Up

Employer-provided life insurance can be a convenient way to make sure that your family has some financial security if you pass away unexpectedly. But coverage amounts are typically lower than the total amount that you would need to help cover the mortgage, debts, tuition costs, and other expenses if you were to unexpectedly pass away. Depending on the type of policy, it may expire with your other company benefits if you were to leave your job for any reason. 

Even if your employer-provided life insurance is not the full amount of coverage you’d need, it is better than no policy at all! Sign up for your employer-covered plan that is free to you as an employee benefit and consider applying for additional coverage outside of your employer to help you obtain coverage you and your family have decided you need.

We know that there are a lot of options out there and that it can be overwhelming to consider all of the types of policies available. That’s why Bestow makes it super easy to apply:

  • Get your instant free quote 
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