Is Life Insurance Through Your Employer Optional?
Employer-provided life insurance is group term life insurance that may be offered as part of your employee benefits package. If available, it is an option for all of a company’s employees.
| Benefits of Employer-provided Life Insurance | Considerations for Additional Coverage |
|---|---|
| Convenience: If employee life insurance is made available to you by your company, starting coverage is simple. Just opt in. | Amount of coverage may not be sufficient to meet your financial needs. |
| Savings: Because employers usually pay for all or most of company life insurance premiums, employees can save or use for other needs the money they would have spent on coverage. | Employer-provided life insurance applies only to the employee, and not to their spouse or children. |
| Acceptance: Most employee life insurance plans are guaranteed, meaning you’ll be accepted whether you have serious medical conditions or not. | Employer-provided life insurance may not continue to cover you should you leave your employer. |
| Early Protection: When you’re just starting out or early in your career, you may not have the funds needed for life insurance. Employee life insurance can provide a degree of financial security for those who depend on you. | You may require additional coverage to provide for their needs in the event of your death if you have dependents who rely on your income. |
| Added Coverage: You can usually increase your coverage as life events and needs change. An employer may offer the option of paying an additional premium amount to increase basic protection. | Shopping around may find a more cost-efficient insurance policy outside of the employer’s plan, especially if you are healthy and a nonsmoker. |
| Riders for Extra Protection: An employer may offer riders (e.g., for certain degrees of illness and disability) to your basic policy that you may purchase for added protection. | Life insurance needs are unique to an individual’s financial situation, including their dependents and budget. One way to determine how much coverage you need is to multiply your annual salary by a certain factor. |
While basic employer-provided life insurance is usually low-cost or free, and you may be able to buy additional coverage at low rates, your policy’s coverage may not be enough to meet your needs. Many employers provide employees with about $50,000 to $100,000 worth of coverage, or about a year’s salary.
If you have dependents who rely on your income, then you may require additional coverage to provide for their needs in the event of your death. Some experts recommend getting coverage worth five to 10 times your salary.
If the coverage you are receiving from the group plan is not enough, you may want to consider purchasing life insurance outside your employer. A common rule of thumb is to have five to 10 times your annual salary in coverage. Another reason for an outside policy is that if you leave your employer, you will likely be uncovered.
Life insurance needs are unique to an individual’s financial situation, including their dependents and budget. One way to determine how much coverage you need is to multiply your annual salary by a certain factor. Many financial advisors recommend about five to 10 times your annual salary in coverage.
Depending on your circumstances, you may want to buy additional coverage. In general, aim to buy the most insurance for your needs that you can afford at the youngest age.
