Ready to shop for life insurance? Whether you’re just getting started or ready to compare policies and buy coverage, figuring out how much you need and what it’ll cost you will get you the best policy. Use our free life insurance calculator and tips below to get the coverage you need and calculate the cost of your policy.
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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.
If you’re looking for a quick answer to how much life insurance you’ll need, check out our life insurance coverage calculator below:
Group life 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.
Group life insurance is 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.
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What is group life insurance?
Group life insurance, also known as group term 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.
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 group life insurance, so it can be a nice-to-have benefit until you get a more robust individual policy.
How much does group life insurance cost?
The cost of group life insurance depends on your individual company and the benefit amount. You may be expected to contribute some money to it or the cost may be completely covered by your employer. Additionally, depending on the coverage amount, group life insurance can be taxable.
If and when you leave your job, you’ll need to start the search for life insurance on your own since your workplace policy isn’t portable. According to the BLS in a 2020 report, the average workplace tenure is around four years.
