Four Questions to Help You Decide if Employer-Provided Life Insurance Is Right For You

September 25, 2017

When you land a fulltime job, employer-provided life insurance might be included in the benefits package. However, if you’re a healthy person and you have dependents, it’s important to understand that relying on life insurance through your job might not be the smartest financial choice. Ask the following four questions to determine if employer-provided life insurance is right for you.

Is the offered coverage enough?

Your employer will likely only pay for basic life insurance, which is generally a relatively low amount such as $50,000 or your annual salary. Since this coverage is free, it’s advisable to accept it. Note, however, that if your dependents rely on your income, such a small amount is unlikely to provide them with any kind of long-term security. Consider the financial challenges your spouse and/or children would face in the event you pass away. Will one year’s salary be sufficient to cover the mortgage, loans, and credit card debt; your children’s school fees; and the costs of everyday living?

Could you get lower premiums?

If you want to purchase supplemental insurance with your employer-provided policy to increase your level of coverage, you could wind up paying much higher premiums than necessary. Here’s why: Employer-provided life insurance policies are group policies, so premiums are based on the overall insurability of the company’s current workforce. Let’s say your colleagues are mostly men over 40. That means they belong to a group that’s at a higher risk of heart disease and cancer, so the insurer will charge higher premiums. Now, if you’re a healthy person in your early 30s, you can save a lot of money and get better coverage by purchasing individual life insurance.

Are there sufficient policy options?

One of the most significant drawbacks of employer-provided life insurance is that it usually offers fewer policy options than most individual policies—even if there are supplemental coverage options available. For example, you might want level term insurance, which provides the same death benefit for the duration of the policy, or variable life insurance, which gives you the option to invest in equities as a part of your policy. Many group policies have very limited options, and if you don’t get information from other insurers, you might never know that there are better ways to put your money to work for your family’s future.

What happens if you leave the company?

If you leave your current employer, you can choose to convert your policy to an individual policy. However, since your employer isn’t contributing anymore, your premiums will increase. You may also be able to transfer the policy to another group plan, though this is generally complicated, since you’ll have to find a plan that’s compatible. Finally, you can cancel the policy, in which case you’ll lose coverage and most likely not receive any cash payout for the accumulated value. In contrast, if you have an individual policy, it doesn’t matter where you work, so long as you keep paying your premiums.

An independent life insurance agent can advise

In conclusion, depending on your situation, employer-provided life insurance might not offer the best coverage at the best price. To find an affordable policy that gives you flexibility and options, you’re best advised to work with an independent life insurance agent like the team at Liberty Financial Group, who can help you find the right insurer and the right policy for your situation. Contact us today!

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