Is the insurance through your job enough?

Updated: Jul 30, 2021

True or False:

“I have life insurance through my job, that’s all I need”

Mostly False:

Most companies only offer $50K in benefits which may not cover your debts, take care of your family, or ensure that the wealth that you are building stays within your family (house, land, business). Group life insurance, life insurance through your job, is often not accessible if you are no longer a full-time employee at your company.

Group life insurance or insurance through your company is a special policy that is offered through your employer. There are major differences between obtaining this type of insurance vs getting a policy on your own. The main difference centers around risk to the insurance company. Since the insurance company can pool the premiums paid by the larger group of employees, the cost to cover each person in the group is significantly less. Therefore a $50,000 policy is often cheaper through your employer’s group plan than if you purchased the same policy on your own.

To be clear, you should ABSOLUTELY take part in your employer’s group plan. Minimum coverage is better than no coverage, and this is an excellent benefit offered by your employer.

So why should you go find an additional policy if your employer is offering group coverage free of charge or cheaper than getting your own policy?

1) This policy is often not portable, meaning it cannot be kept if you leave your current employer or reduce your employment from full-time to part-time

2) $50,000 does not cover what is truly needed to cover your debts and/or take care of those who depend on you

3) The younger you are when you purchase your life insurance policy the cheaper the policy will be, all other things being equal

1. Group life insurance policies are often not portable

Every company and every plan differ so check your company’s offering but often the life insurance plan that you have through your company is specific to that company. If you are laid off, if you leave for a different company, or potentially go from Full-time to part-time you may lose your coverage and have to re-enroll in a new plan. While the next company that you go to may also offer life insurance, the plan could be different and if you want additional coverage depending on your age it may cost you more as age plays a significant role in how premiums are priced.

2. $50,000 is not enough coverage

Often the rule of thumb for how much life insurance is a multiple of your salary. Many planners will say somewhere between 10-12x your salary. So, if you make $50,000 per year you should at a minimum have $500,000 in face value. Face value or the death benefit is the amount your policy will pay to your beneficiary.

This is just a rule of thumb. Depending, where you are in your life this may be too much or not enough. You should speak with a financial advisor to get a true understanding of how much benefit you need. However, one way to get started is to understand the amount of debt that you currently have including student loans that have a co-signer. Even if you are single without any assets, if you have a co-signer on your loans, that person will often be responsible to cover that loan. Next if you have assets like a house or land that has a mortgage or lien, you should figure how much it will cost to cover the payoff and any legal fees to transfer. This is how you protect the wealth that you are building and ensure that it is passed to whomever you see fit instead of being repossessed.

Finally, another big consideration is taking care of your spouse or children. Think about the monthly cost it takes to cover your dependents. If you are the breadwinner or your dependents are reliant on you for bills and insurance needs, college tuition in the present or future, you should figure this into your calculations. When thinking about these costs you will quickly see that $50,000 often does not cover the next few years for your dependents.

3. The younger you are, the cheaper life insurance will be for you to purchase

When premiums, the yearly cost of your policy, is determined by an insurance company, four factors play a pivotal role in the pricing: age, gender, overall health, and if you smoke. With all other factors holding equal, age at policy purchase has a big impact on your premium cost. The earlier you buy a policy, the cheaper it will be for you. It is a great idea to lock in a premium for the next 20-30 years at a cheaper price than to wait until you are older and have additional considerations. This is also true when moving jobs. If you are older when you take part in your new company’s policy, you may end up paying more than you did before. Getting your own private insurance policy with the flexibility to increase the benefit value as your life changes at a younger age is a great way to get the best price.

Group life insurance is a great supplemental benefit, but it has its limitations. To ensure that you have adequate coverage, take part in your company’s group benefit while also selecting a private policy that best fits your life.

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