If you work full time for an employer, you may have a life insurance option in your benefit package. These employer-based plans are sometimes called "basic group life." It's a great benefit, but does it provide enough life insurance? Or should it be looked upon as a good start from which to build? With open enrollment coming up, now is the perfect time to take a hard look at your employer-based insurance coverage, its benefits and its limitations, and consider options to supplement your plan if you find it may be lacking.
While individual plans and policies may vary, here are some general pros and cons of employer-based life insurance.
Pros of employer-based life insurance
Cost. Oftentimes, life insurance benefits offered as part of a benefits package come at no cost to employees. Employers are able to negotiate group rates with insurance companies and they typically pass that on to their employees by offering a base plan for no cost. For the majority of employees, signing up for this free benefit is a no-brainer.
It's easy. When new employees are going through their benefits packages, all they need to do is check "yes" to opt into their life insurance benefit. Getting coverage couldn't be easier.
No physical required. Most employer-based policies are guaranteed and do not require the employee to get a physical or disclose any health condition. This is one way people with even serious health problems can get basic coverage.
Cons of employer-based life insurance
The size of the benefit. The amount of coverage typically provided by employer-based plans is one or two times an employee's annual salary.1 Many smaller employers cap that coverage at $50,000 to $100,000. While this is a solid start, for most people, this is simply not enough. You may want more coverage than this provides.
Coverage is tied to your job. If you leave your job for any reason, your life insurance coverage goes away. Some employers offer the opportunity for departing employees to continue the plan on an individual basis, but premiums will go up significantly.
Employer plans are usually "term" life insurance. What is term life? It's a defined period of coverage, typically 10 to 30 years. If you pass away during that time, the insurance company pays the benefit to your beneficiaries. That sounds standard, right? That's what life insurance is, right? But, as the expression goes, the devil is in the details. When the term expires, your coverage goes away. And, term life typically doesn't offer a cash value option for you to withdraw during your lifetime.
Usually doesn't cover your spouse. Employer-sponsored health insurance will most often include an option for spousal coverage. Not so with life insurance.
Because employers pay the premiums and coverage is guaranteed despite the health of the employee, there's no reason to not take advantage of this important benefit. The question then becomes, is the coverage sufficient?
How much life insurance do you need?
This is a complicated question, the answer to which is personal and depends on many factors. Are you a young professional just starting your career? Do you have a spouse and a family? Do you have a mortgage? How much other debt do you carry? Is your family reliant on your income?
To determine the amount of coverage you need, look at your age, your income and your current debt load as a place to start. Then, do a deeper dive. Do you have children whose education you want to provide for? Do you want to ensure your family has the same standard of living as they do with you as a wage-earner?
When you start factoring in debt load, your family's standard of living and future education expenses for your children, it's easy to see that your employer-sponsored life insurance is a great place to start, but nowhere near enough.
If that's how you're feeling, you're not alone.
A recent LIMRA survey2 confirms it. The 2023 Insurance Barometer Study found:
- 41% of Americans don't have enough life insurance, and that figure has doubled since 2010
- 54% don't purchase supplemental plans because they're confused about how much or what type of insurance to buy
- 50+% overestimate the cost of life insurance coverage, with 43% of millennials believing it costs six times more than it actually does
Find an independent insurance agent
The options and variables that go into choosing the right life insurance coverage for your family are dizzying. But you don't have to go it alone. And many people don't know they don't have to limit themselves to the opinions and options of just one insurance company.
Working with an independent insurance agent, you'll get a wide variety of options because they work with multiple insurance companies to offer an entire suite of insurance products to meet your needs. They're not limited to one company, but instead secure coverage from multiple companies. That way, you can get the best product, tailored to your needs, for the best price. Other plusses of using independent agents:
- They can shop around
- They're specialists in different products and can find the best coverage for your needs
- They advocate for you, not for the insurance company
- They have unbiased opinions
How to get started
Finding an independent insurance agent is as easy as making a phone call.
Set up a meeting with one of our helpful agents on the insurance team at Minnwest Insurance Agency. We’re located in hometowns throughout Minnesota and southeastern South Dakota. As independent agents, we can compare rates from numerous insurance companies, so you can get the best coverage at the best value for yourself and your family.
Minnwest Insurance Agency, Inc is an affiliate of Minnwest Bank. Products offered through Minnwest Insurance Agency, Inc are: Not a deposit | Not FDIC insured | Not insured by any federal government agency | Not guaranteed by the bank or an affiliate of the bank | May go down in value (if applicable)