Employer-sponsored life insurance is an excellent perk, and it’s one many happily take advantage of. As a recent report from the Bureau of Labor Statistics notes, 59% of civilian workers had access to workplace life insurance as of March 2017, and 98% of those workers participated in the plans.
If your boss is going to offer up life insurance as a workplace perk, why wouldn’t you sign up? Even if you’re paying for the benefit, your premiums are commonly deducted via payroll, making it downright convenient. Individuals with serious medical conditions may also qualify for group life insurance coverage regardless of health — even if their health disqualifies them from buying a private policy on their own.
While workplace life insurance coverage can be handy, that doesn’t mean they’re enough for your needs. Many employer-based policies come up shockingly short in terms of coverage levels, flexibility and long-term support.
Here are some reasons relying on your workplace life insurance policy could spell financial disaster, and why you should purchase your own private policy to stay on the safe side:
1. The value of your policy may be too low.
While workplace life insurance is a solid perk, policy limits are typically low. While employer coverage limits vary from firm to firm, many workplace life insurance policies have limits in the $20,000 to $100,000 range.
Considering the fact most experts suggest you buy anywhere from 5 to 15 times your income in life insurance (i.e. $500,000 to $1.5 million in coverage for a $100,000 income), a low policy limit could leave you underinsured.
While there’s nothing wrong with signing up for your workplace policy, you should also buy a private policy to supplement. While workplace coverage can be insufficient, there is no such thing as “too much” life insurance.
2. You could leave your job or get laid off.
Another reason not to rely on your workplace coverage is that it’s tied to employment. Sure, your policy will stay in force while you have your job. But, what if you’re laid off, find a better deal or start your own business?
You’re probably telling yourself you would just buy a policy if that ever happened, but as usual, things aren’t so simple. While you may be healthy now, that doesn’t mean you’ll always be in tip-top shape. If you happen to get sick or fall into ill health by the time you switch careers, you may no longer qualify for a private life insurance policy.
What would you do then?
3. Your workplace policy might be overly expensive.
If your workplace supplements the cost of your life insurance policy, you could be getting one heck of a deal. But, since that may not be the case, you should never assume.
The best way to find out is to get a free quote for life insurance and compare to what you’re paying through your job. Since term life insurance can be inexpensive, you may get a better deal on a lot more coverage if you shop around on yourself.
Make sure to see how quotes and coverage amounts with several companies stack up so you can get a full “apples to apples” comparison. And, if your workplace coverage does wind up being sufficient and a better deal, at least you’ll know either way.
4. Workplace policies aren’t aren't tailored to your needs.
Another reason your workplace life insurance policy may leave you disastrously unprepared is that it isn’t tailored to your specific lifestyle or needs. Most employers pick a generic plan and level of coverage and offer it to everyone irrespective of family size, income or retirement timeline.
By shopping for your own life insurance policy, you can make sure you purchase a plan that actually aligns with your goals. If you’re 20 years from retirement and only need coverage for your working years, you can buy a plan with enough coverage to replace your income for twenty years and call it a day.
If you want tiered coverage that comes in full blast while you’re working and teeters off once you retire, you can buy two life insurance plans that overlap – say, a 30-year term policy for $100,000 and a 20-year policy good for $500,000. With this strategy, you’ll get maximum coverage during your working years and a smaller amount after you retire.
When you buy your own plan, you decide on coverage levels and timeline, whereas your employer plan is not at all tailored to your needs.
The Bottom Line
If your employer offers life insurance, go ahead and take advantage. But, don’t fool yourself into thinking a small employer policy is enough to protect your family in the worst of times.
At minimum, your life insurance policy should be enough to replace your income during your working years. Many people also buy additional coverage to cover debts and liabilities, provide a cash cushion for college, or leave behind a legacy.
If your workplace policy isn’t big enough — or reliable enough — to meet all your needs, it’s up to you to close the gap.