3 Reasons Why Your Employer-Provided Life Insurance Probably Isn’t Enough

3 Reasons Why Your Employer-Provided Life Insurance Probably Isn't Enough

Photo courtesy of Gabriel Amadeus

For new parents, life insurance is one of the most important first steps in creating financial security. When it’s done right, it’s a cheap way to make sure that your family will have the financial resources it needs no matter what.

A lot of people know this, but still don’t have the right kind of life insurance protection. And one of the main culprits is employer-provided life insurance (also called group life insurance).

Many companies provide a certain amount of life insurance to their employees as a benefit. This sounds great, and it can be in certain situations.

But it can also cause problems when people assume that the life insurance they have through work is all they need. Sometimes it is, but more often than not that coverage just doesn’t provide their family with the right amount of protection.

So today we’ll talk about the 3 reasons why your employer-provided life insurance probably isn’t good enough, and what you should be looking into instead.

1. It’s not really yours

To me, this is the biggest strike against employer-provided coverage.

Your ability to keep the policy is dependent on two things:

  1. Your employer’s willingness to keep providing the benefit, and
  2. Your continued employment there.

If either of those things change, you could find yourself without coverage. And unfortunately, you don’t have full control over either of those things, which means that your ability to protect your family is not fully in your hands.

2. It probably isn’t enough coverage

If you’re starting a family, you probably need more life insurance than you think.

How much money would it take for your family to cover all of its expenses for multiple years if they no longer had your income coming in? And if you’re a stay-at-home parent, how much would it cost to replace all of the things you do on a daily basis (daycare, cooking, cleaning, driving, etc.)?

If you’re not sure how much life insurance you need, this tool will help you figure it out. It has a calculator and everything.

In many cases, the amount of life insurance you’re able to buy through work just won’t be enough. At the very least, you’ll probably need to get more somewhere else to make up the difference.

3. It can be more expensive

Employer-provided life insurance is often appealing because it’s cheaper than the alternatives. That’s not always the case, especially if you’re in great health, but it’s often true.

The problem is that while it may be cheaper today, your premiums will increase every 5 years and eventually it can become more expensive than your other options. So while it might save you money in the short-term, it can end up costing you more over the long-term.

What should you be looking at instead?

So if your employer-provided life insurance isn’t good enough, what should you be getting instead?

In most cases, an individual term life insurance policy will be the best choice for you and your family. It has a lot of benefits that your employer-provided life insurance does not:

  • It’s yours as long as you continue to pay the premiums. No one can take it away from you.
  • You can get as much coverage as you need.
  • You can lock in a low, fixed premium.

The big downside? You have to do the work of finding the policy on your own instead of just taking what your employer offers.

But here’s the good news: I have a comprehensive guide to life insurance that leads you through the entire process. You still have to make it happen, but all the steps are laid out for your there.

Going this route will make sure that your family has all the coverage you need, at a price you know you can afford, and that no one can take it away from you.

Employer-provided life insurance has its place

Before you rush out and cancel the life insurance you have through work, know that it does have its place.

If you have health issues, it may be difficult to find affordable life insurance on your own. In that case your employer-provided coverage can be a huge blessing.

And even if you’re healthy it can serve as a nice supplement to your individual policy, especially if your employer is footing some of the bill.

And even if you do want to handle all of your life insurance needs with an individual policy, make sure to get that policy in place before canceling your employer coverage. You don’t want to be in a situation where you don’t have coverage when you need it.

Life insurance can be a complicated topic and there’s no one-size-fits-all answer here. But do yourself and your family a favor and take the time to evaluate whether your employer-provided coverage is really all you need. Chances are that you can find a better option.

Start building a better financial future with the resource I wish I had when I was starting my family. It’s free!

6 Comments... Read them below or add one of your own
  • Kirsten August 28, 2014

    I have been wondering this exact thing, so I sure am glad to see your article. We have only ever had employer provided life insurance. I purchase the block offering for myself (usually around 150k) and we buy up for my husband, because he has more student loan debt and, though I might not be reponsible for it in the event if his death, we wanted to cover our bases. So we’d have enough to pay off the student loans and most of our mortgage. Most, but not all. That would leave me scrambling to sell the house if he died, because I’m not sure I can afford it on my salary alone, if I have to continue to pay for daycare, too… So, yeah, wow. Lots to think about this morning and the sun isn’t even up!

    • Matt Becker August 29, 2014

      Hey Kirsten! If you’d like a little more guidance, you can check out these 4 posts I wrote guiding people through the process of buying life insurance: A New Parent’s Guide to Life Insurance. And please feel free to reach out any time if you ever have questions. Best of luck!

      • Kirsten August 29, 2014

        Thank you. I’ll read through that information and pick your brain if questions come up.

  • Kate @ Money Propeller August 29, 2014

    My hubs has a life insurance from his company and it’s quite expensive. So, I have my own life insurance, which is very important, that is more cheaper with good benefits too.

  • Jim Santo December 26, 2015

    I’m a salaried retiree from a major corporation. Retired in early 1999. Now 75 yrs. old. One of benefits for salaried retirees was non-contributory life insurance based on salary and reducing for the first five years of retirement and capped thereafter. My non-contributory amount has been $44,500 since 2004 0r 2005. My employer, without explanation, changed salaried retiree life insurance to $5,000 effective January 1, 2016. There’s a conversion feature but the max is $10,000 and paid for by the retiree. For the last four months, I have written to this employer asking for an explanation as well as legal basis for this reduction in my benefit. I have not received a response. I’m tempted to engage a lawyer but believe this would be a waste of money and time. Any suggestions?

    • Matt Becker December 31, 2015

      I’m sorry you’re dealing with this Jim. It’s a really tough situation. To be completely honest I don’t know much of anything about the legal options available to you here. It really depends on the specifics of your coverage, and even then that’s an issue that’s better left to attorneys. I wish I could be more of a help here, but in any case I wish you the best of luck.

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