Workplace Life Insurance Coverage Calculator

Not sure if your workplace coverage is enough? Crunch the numbers with our easy-to-use calculator.

Colin Lalley 1600

Colin Lalley

Published September 24, 2019

Easily figure out your life insurance needs

Whether you’ve decided you’re ready to purchase a life insurance policy to protect your family or you’re just curious about how much it might cost, the first question you need to answer is how much coverage you really need. Thankfully, our life insurance calculator makes it easy to figure out.

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How much life insurance do I need?

Before we had tools online to help us figure these things out, the first step in getting life insurance was to sit down with a financial adviser or life insurance agent and do a life insurance needs analysis worksheet.

This basically consists of:

  • Adding up your current debts, monthly living expenses and income, multiplying them by the number of years your family would need support and adding any extra financial obligations like college tuition.
  • Subtracting your current assets, the value of any life insurance policies you already own (like group life insurance coverage you may have through work) and any future assets like social security benefits.

The remaining number is the coverage gap — the amount your family would need to be financially comfortable in your absence. This is the coverage amount you should select as the death benefit. The amount of time your family will require coverage is called the term.

Two final things to take into account when making a life insurance calculation:

First, the payment your beneficiaries receive is tax-free, so you can use your after-tax (take-home) pay to calculate your income replacement needs.

Second, remember that the death benefit gets paid upfront, but your beneficiaries won’t use it all at once. Much of it can be invested, and the rate of return can provide additional income to make the benefit last longer. However, you’ll also want to consider the inflation rate over a 20- or 30-year term.

Learn more about how much life insurance you need.

Cost of life insurance

The good news is that most people overestimate the cost of a term life insurance policy by at least 2x to 3x. There are a number of factors that determine your life insurance premium, including:

  • Age: Life insurance is cheaper when you’re young, and increases 8-10% per year
  • Health: Any health conditions or unhealthy habits like smoking make life insurance more expensive
  • Coverage amount: The bigger the death benefit you select, the higher your premiums
  • Term: A 30-year policy costs a bit more than a 20-year term policy

A healthy 30-year-old male who purchases a 20-year term policy with a $500,000 death benefit can expect to pay approximately $28.58 monthly.

Life insurance is a popular benefit for employers to offer. According to the Bureau of Labor Statistics (BLS), in 2019 60% of non-government workers had access to employer-provided life insurance. Life insurance isn’t as common a benefit as health insurance, so offering it can help draw talent to a company and improve the employer-employee relationship.

This type of insurance is group life insurance; it’s often easier to qualify for than an individual life insurance policy, but doesn’t provide the level of coverage many people need. That makes it a form of supplemental life insurance at best.

In this article:

What is group life insurance?

Group life insurance is the type of life insurance offered by employers, usually through large carriers like MetLife, Principal or Liberty Mutual. It gets the name from the fact that it’s offered to a large group (in this case, employees of the same company) rather than an individual.

Besides an organization (the employer) being the owner of the policy, group life insurance works essentially the same as individual policies:

  • It’s usually a term life insurance policy, which means the coverage expires after a certain number of years. You may also hear this called group term life insurance.
  • A premium is paid either monthly or annually to keep the policy active, covered in full or in part by the employer.
  • Upon the death of the employee, a death benefit, usually a lump sum of money, is paid out to a designated group or person known as the beneficiary.

Pros of group life insurance

Ninety-eight percent of people who have access to a group life insurance plan take advantage of it. Why is this benefit so popular? Because it’s an easy, affordable start to creating a financial safety net.

It’s easy to get

Group life insurance is often guaranteed issue. This means there are few (if any) hurdles to getting coverage.

This is particularly beneficial for employees who are older or in poor health, as it means they don’t have to go through the underwriting process.

If employees don’t enroll when the policy is first offered, they may need to wait until their employer’s open enrollment period and then complete an Evidence of Insurability (EOI) form, which is a health history questionnaire, at which point they could be declined.

Your employer pays for it

Much like health insurance, employer-provided group life insurance is subsidized and insulates employees from the full cost of the policy.

A certain amount of coverage — typically a set amount, like $50,000, or up to one to two times an employee’s salary — is provided as a benefit at no cost to the employee.

For coverage beyond that amount, employees need to foot part of the bill.

Some life insurance is better than none

If you’re able to get life insurance for free or cheap through your employer, it’s worth taking. Having some life insurance is better than not having any at all. If nothing else, it provides a subsidized safety net while you build your own.

There’s little obligation to workplace life insurance, so it can be a nice-to-have benefit until you get a more robust individual policy.

Cons of group life insurance

Many people make the mistake of thinking that because their employer offers life insurance, that’s the only coverage they need. However, for most people, this isn’t true.

Group life plans are limited in their coverage and options, and it could cost you if you rely on that policy for too long before buying an individual one.

It won’t provide enough coverage

Employees can usually buy additional coverage on top of what their workplace provides, but there are still often maximum benefits allowed through employer-provided plans. According to BLS, the median maximum benefit amount for employer-provided life insurance is $250,000.

While that amount may be enough for some people, it won’t be for others. A good rule of thumb is to have life insurance coverage that’s 10 to 12 times your income. (For example, someone with a $50,000 salary should aim for at least $500,000 in coverage.) Depending on your needs, like a mortgage or dependent child, you may require more than the maximum group life insurance coverage offered by your workplace plan. You can use our free coverage calculator to figure out the right amount:

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Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.