Your employer may give you term life insurance as a part of your employee benefits. This is often called group life insurance and doesn’t require underwriting. But is this life insurance good enough for you?
Here are some things to keep in mind when you get life insurance through work:
Generally, the premiums your employer pays are a taxable benefit to you. You pay premiums for life insurance you own personally with after-tax dollars. In both cases, the death benefit goes to your beneficiaries tax free.
Do you want your employer to know how much life insurance you have? By adding extra coverage to your group plan, you lose some privacy. However, this probably shouldn’t be a big concern to you.
Too little coverage
The amount of life insurance from work tends to be small—often one or two times your salary. That’s like saying that your family only needs to replace your income for one or two years. Is that enough? You may have additional obligations like a mortgage, supporting your family, and helping fund education for your children.
You may be able to increase your work coverage and get coverage for your spouse, too. Before you do, consider personal term life insurance. You’ll usually find stronger guarantees, more features, and competitive prices. Your insurance application may not even ask about your group life coverage. That’s a sign that the amount you get through work isn’t significant.
Your employer is the policy owner and makes decisions about your group life insurance. You’re a certificate holder with no real say and the plan can be changed without your input or approval.
Your group life insurance ends when you leave your employer. That’s not when you want to take time to apply for new personal life insurance. What do you say when asked about your income when you’re not working? How do you pay the premiums when your income stops?
One thing to keep in mind is you often have the right to convert group life insurance to personal life insurance without proof of your health. While the premiums may not be attractive, at least you have protection while you search for new coverage.
Earlier, we looked at life insurance for your mortgage from your lender versus personal ownership. The situation here is similar. The premiums you pay for group life insurance aren’t guaranteed. The plan can be changed without your involvement because you have a certificate, not a contract.
The bottom line
The fact that many employers provide life insurance to employees shows that coverage is valuable. However, that doesn’t mean the coverage is enough for you and your family.
- Are Your Life Insurance Premiums Guaranteed?
- Whole Life vs. Universal Life Insurance
- A Primer on the Different Types of Life Insurance
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