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 March 13, 2018

Easily figure out your life insurance needs

Whether you’ve already decided you need 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 to calculate your life insurance needs

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:

  1. 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.
  2. 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.

You may have heard a general life insurance rule of thumb is to buy ten times your annual salary. However, relying on a rule of thumb like this is a bad idea, as everyone’s individual circumstances and living expenses are different, and an imprecise calculation can easily mean leaving your family underinsured, or have you overpaying for coverage you don’t really need for years.

“One size does not fit all,” says Policygenius’ Emily Strobelberger. “While life insurance rates depend largely on a client's health, finances (specifically income) are also a major factor in determining how much life insurance coverage people need. In addition to income, factors like number of dependents and net worth could help justify the amount requested.”

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 more 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.

Term or cash-value life insurance?

The other thing that will affect your life insurance premiums is the type of life insurance that you buy. So far we’ve been discussing term life, which is by far the most affordable kind of life insurance. Permanent policies like whole life insurance build cash value over your entire life out of the premiums you pay, but the death benefit phases out so that by the time you reach your golden years the policy will only pay out what you’ve paid in, plus some interest.

On top of that, whole life policies are usually at least six to 10 times more expensive than term policies for the same benefit amount. For this reason most people choose term for their insurance needs, and other tools such as individual retirement accounts to build savings. For more on term vs. whole, go here.

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How to choose a life insurance company

All life insurance companies offer the same financial protection, and thanks to regulations they’re all guaranteed to pay if the worst happens (with some rare exceptions for self-inflicted injury, fraud and crimes). So how to know what life insurance company you should go with?

Simple: whichever one gives you the best rate. Life insurance companies offer the same product, but they have different methods for measuring risk. One company may see you as risky to insure, while another may see you as a relatively safe bet. Therefore you may get a wide range of life insurance quotes from different providers.

So it’s important to compare quotes from as many life insurance carriers as possible before buying a policy. You can use our tool to compare unbiased, accurate life insurance quotes from the nation’s top insurers tailored to your specific profile. Get started in minutes today.

Life insurance is a popular benefit for employers to offer. According to the Bureau of Labor Statistics (BLS), in 2017 59% 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 policy, but doesn’t provide the level of coverage many people need. That makes it a form of supplemental life insurance at best.

Because of this, it’s important to know:

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:

  1. It’s usually a term policy, which means the coverage expires after a certain number of years.
  2. A premium is paid monthly to keep the policy active, covered in full or in part by the employer.
  3. Upon the death of the employee a lump sum of money, the death benefit, 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 need to wait until a certain 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; for someone making $50,000, that only covers five years of income replacement. 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.

It’s one-size-fits-all

Individual life insurance policies allow you to customize the death benefit amount and term length, and change policy provisions through riders. Riders let you tailor a policy and do things like accelerate benefits in particular circumstances.

While group life insurance policies make certain concessions, they are largely one-size-fits-all that don’t provide the level of customization some people need. That means in addition to being underinsured, you may also find yourself with a policy that doesn’t fit your unique situation.

Since employees don’t have the option of comparing and choosing which life insurance company they want to go with, you aren’t able to make sure you’re getting the best policy available to you.

You can’t take it with you

One of the biggest drawbacks of employer life insurance is that it’s not portable — it’s tied to your employment so if you switch jobs or are fired, your policy no longer covers you.

If you’ve put off buying coverage because you had a workplace policy, you’ll have to purchase your own if you still want that protection. As you’ll see below, this delay can result in more expensive coverage.

Some employer-paid life insurance policies can be converted to an individual policy if you leave the job. There are two things to consider before you decide whether to take this option:

  • If you're young or in good health, you may find similar policies in the marketplace that cost less.
  • If you're older or in poor health, you may have a hard time finding an affordable policy on your own.

Some basic comparison shopping can help you make a final decision. You can also contact a broker or agent to help you determine if converting your existing plan is the best option.

Group life insurance cost comparison

Group life insurance cost 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.

Note that how a group policy is paid for can have tax implications.

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, the average workplace tenure is around four and a half years.

But life insurance gets more expensive the older you are when you purchase it. Below is a cost comparison for a 30-year, $500,000 policy for a healthy man in New York at ages 30 and 35.

Age 30Age 35
Term Length3030
Coverage Amount$500,000$500,000
Est. Premium Cost (monthly)$33.00$40.00
Est. Total Cost$11,880.00$14,400.00

Over the life of the policy, you would pay nearly $3,000 more if you waited five years to buy the same policy.

You may be given the option to convert your group policy to an individual policy if you leave your company.

Because the policy will likely be a guaranteed issue, non-underwritten policy, you’ll pay even more than you would for a properly underwritten policy. The only time this is worth considering is if you have a medical condition that would keep you from getting competitive rates on an individual policy.

How to get group life insurance

Because you get group insurance through your employer, you’ll typically go through whichever carrier provides your other workplace benefits. You may need to wait until your company’s open enrollment period before you can apply.

Most of the country’s top life insurance companies offer group insurance, including:

  • MetLife
  • AXA
  • Brighthouse Financial
  • Cigna
  • MassMutual
  • Principal

Check with your HR team or benefits manager to find out who provides your company’s group life insurance and when you can apply.

Ready to start shopping for your own life insurance? Use our calculator to find out how much it will cost you.

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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.