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Is life insurance through work enough?

April 1, 2022 • 5 min read

What we'll cover

  • Employer-provided group life insurance breakdown 

  • Determining if life insurance offered through an employer is enough coverage

  • What happens to your life insurance when you leave your job 

Life insurance is a popular benefit for many American workers. If that includes you, you may be wondering if it provides enough coverage. The amount of life insurance right for you depends on your age, goals and budget. Carefully evaluate your own circumstances to determine if life insurance through work is sufficient for your needs.

What is employer-provided group life insurance?

Many employers offer group life insurance as part of an employee benefits package, often with no charge to the employee. Known as basic group life or group term life insurance, the employer may cover part or all of the premium, and in exchange, the insurance company will pay out a death benefit to your beneficiaries in the event of your death.

Unlike many individual life insurance policies you can purchase, group life insurance through employers is typically guaranteed, meaning you do not need to take a medical exam or answer health questions for coverage. But keep in mind that the amount of the death benefit and whether spouses and children are also covered varies by employer.

How much life insurance can you get through work?

Life insurance offered through an employer-sponsored group plan usually covers one to two times an employee’s annual salary, but many companies offer plans that pay out a flat rate. The policy may also exclude other forms of compensation beyond your base salary, such as bonuses, commissions or other incentives that are reported as income.

Some companies may structure the amount of coverage according to employee rank, with executives and top-level managers eligible for larger policies than junior staff members. If you’re unsure what your company’s life insurance offerings include, reach out to HR. They should have the resources to walk you through the specifics of what policies are offered.

Is life insurance offered through an employer enough?

Whether or not your employer’s policy is enough depends on your needs and those of your family. However, many experts recommend a life insurance policy worth at least 10 times your salary, so the coverage you get through your employer is likely not sufficient.

Remember, while 10 times your salary may be a popular guideline, depending on your individual circumstances you may need even more coverage. The DIME (debt, income, mortgage and education) method factors in higher education for children, making it a good formula for parents. However, to determine your true life insurance needs, you should consider your overall debts, savings and annual income when selecting a plan.

Should you buy additional life insurance through your employer?

You should consider taking advantage of employer-sponsored life insurance if it’s offered. It is often free or low-cost to you, and it also provides the convenience of being guaranteed. However, the group policy offered by your employer is likely not enough.

You may have the opportunity to purchase additional life insurance through your employer. This option will typically allow you to buy a policy worth three or four times your salary. If you choose this option, though, you may need to undergo an underwriting process, which can include a medical exam and questions about your health (unlike the group policy that your employer pays for). Your eligibility for supplemental life insurance through an employer is also up to the company. You may only be able to enroll within a certain time period, such as within one year of your hiring, or after a qualifying event, like the birth of a child.

Buying additional life insurance through your employer can be beneficial if the main policy offered does not cover your needs. However, you may not be able to take the policy with you if you leave or change jobs. The coverage may also have other significant limitations. For instance, the supplemental coverage may be a form of accidental death and dismemberment insurance, which only pays out if you die as a result of an accident or a form of burial insurance policy, which only covers funeral and burial costs. A thorough review of the potential needs of your family in the event of your death can help you determine if you need more insurance beyond the group policy paid for by your employer.

What happens to your life insurance when you leave your job?

If you leave your job or are terminated, you may also lose life insurance coverage through your employer. Sometimes, you can convert your group policy to an individual policy, but the cost may increase significantly, especially if your employer was paying 100% of the premiums. If you start a new job, you can enroll in that company’s life insurance plan. Having additional coverage beyond your employer’s policy can help ensure you’re covered regardless of employment status.

Supplement employer-sponsored life insurance for your family's future

Life insurance offered through the workplace is a useful benefit that you should consider taking advantage of if it’s available. However, the size of the policy may not be adequate to fully provide for your family in your absence.  For many people, purchasing additional life insurance either through your employer or on your own is a smart choice to help ensure financial security for your loved ones. With the proper planning, you can find the right amount of coverage for your situation.

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