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Why your employer’s group life insurance isn’t enough

Est. 5 min read

When you’re applying for a new job or considering a move from your current job, it’s important to consider the health benefits your employer offers. While things like salary and company culture are important, knowing how your employer is going to take care of you counts just as much.

We all know most companies offer health insurance, but some offer group life insurance, too. But is employer-offered life insurance enough? Do you need to get an individual plan instead? Should you be using both?

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The downside of employer group life insurance

There are a number of drawbacks to having employer group life insurance, and for many people they’ll ultimately outweigh the good points.

You don’t get enough coverage

The main purpose of life insurance is income replacement: giving those you’ve left behind the money to pay for things you’d otherwise be paying for with your salary if you hadn’t died.

Everyone’s life insurance needs are different because they’re so dependent on an individual’s lifestyle and who is going to need to take advantage of the death benefit if a person dies. Do you have a spouse? A home with mortgage payments? Kids? A business? More things that cost money – money that you’re currently providing through your income? You need a lot more coverage than a young, single renter without any of those expenses in his or her life.

Unfortunately, employer group life insurance policies don’t typically take this into account. They act more as a “one size fits all” option. You normally have the option to customize life insurance policies with riders – provisions that provide additional benefits – but group policies have no or limited riders available to you.

This doesn’t work for the majority of people. Unless you need the bare minimum of coverage, employer life insurance probably won’t provide enough. Death benefits are set at either a fixed amount – say, $100,000 – or something like one or two years’ salary. That means it might cover a year or two of normal expenses, but doesn’t do much in the way of providing for future mortgage payments, helping put kids through college, and so on. If you purchase your own life insurance, you’re able to get coverage for more than just the immediate future.

Even if you think one to two years is enough coverage for the people in your life, keep in mind that it may not even cover the full amount of money you’d expect to make. The death benefit might match your salary, but it won’t take into account extra income you’re used to like bonuses or commission. If your cost of living takes this extra income into account, it’s important that your life insurance does, too.

Your insurance is tied to your employment

If you get health insurance through your employer, you’ll lose that coverage if you lose your job or switch companies. The same is true of employer group life insurance: you’re covered, but only as long as you work there.

You might be tempted to put off getting an individual policy if you’re covered by work, but if you switch jobs often, you might soon come across a new employer that doesn’t offer a good life insurance option, or no option at all. That means it’s time to get your own policy…but because you’ve been relying on work, you’re now paying much higher premiums than you would be if you’d applied when you were five or ten years younger and healthier. In the long term, it could cost you a lot of money if you hold out on an individual policy.

Considering that as of 2014 the average employee was with their current employer for 4.6 years, odds are that you’ll have to rethink your coverage relatively soon. Do you really want that hassle? If you get your own life insurance, you won’t have to worry about it for 30 years (or however long your term is).

Because your policy is controlled by your employer, you naturally have little control over it. Your employer can cancel or change the policy and there’s not much you can do about it. Life insurance is a vital part of your financial safety net, and the last thing you want is for someone else to be making decisions for you.

“But I’m pretty sure I can take my employer’s life insurance policy with me when I go…” That’s great! That means your employer has provided a portable policy – one that you’re able to convert to an individual policy. Unfortunately, whether the policy is portable or not, you probably won’t be taking it with you regardless.

Either you can’t take your policy with you and your coverage ends with your employment, or it will become prohibitively expensive if you can take it with you. Group policies are priced based on the group, so if you convert it to an individual policy the premiums will likely become much higher than you’d be able to get if you just applied for a new individual policy on your own.

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The benefits of employer group life insurance

Still, there are some good things about the life insurance your employer provides. The main benefit is that the plan is typically a guaranteed issue policy. That means that unlike the traditional application process, where you have to undergo a medical exam, you’ll instead just have to answer some questions about your health in order to be covered. It’s a pretty low-touch process.

This is good for people who might have trouble getting life insurance on their own, like older people or those with certain medical issues. It’s also less of a hassle since you don’t have to schedule time for an exam, and the last thing anyone wants to do is plan our time around a work-related errand.

A group policy can also be cheaper than an individual policy in many cases. Even if you do end up getting your own life insurance policy, if your employer is offering one anyway it may not hurt much to sign up through work as well as a supplement to your own policy.

For most, employer-offered group life insurance isn’t enough on its own

It’s not right to say that you shouldn’t use your employer’s group life insurance, but you definitely shouldn’t rely solely on it. You should have your own policy: it’ll be cheaper considering the additional coverage you’ll get, you’ll have more options and control, and you won’t be beholden to a third party. But if your employer is offering life insurance at a cost that isn’t prohibitive to you, you might consider taking part in it. After all, you’re only adding another layer of protection for your loved ones.

Image: Republic of Korea

Published on November 2, 2015

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Colin Lalley writes for PolicyGenius, a digital insurance brokerage trying to make sense of insurance for consumers.
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