FREQUENTLY ASKED QUESTIONS

Many employers provide life insurance policies for their employees, and that is a very good thing. It’s an excellent incentive for employees, and it can prove to be very beneficial. However, while your company may provide life insurance, you may be wondering if it is enough to provide your loved ones with financial security should you pass away. Another question you may have is if you are paying too much for the policy. Believe it or not, a healthy 50-year-old man could save as much as 80 percent on the premiums he pays in the first year alone if he switches from the term life insurance policy that his employer provides to an individual policy. And that savings doesn’t only apply to older people; young employees can also benefit with individual covers because they may be able to lock in lower rates that will last for decades.

Why Employees Opt for the Insurance their Company Provides

Given the fact that you could save more money by taking out an individual policy, you may be wondering why so many employees do opt to take out an insurance policy with their employer. There are actually a few reasons.

Some companies actually pay for some of the life insurance that they provide for their workers, which is very appealing to many people. Some companies also allow workers to buy more coverage for themselves and their spouses at a low rate – and with no medical exam! That is also very appealing.

Take this situation into consideration: If you make $75,000 a year, your employer may offer $75,000 in insurance coverage at very little or no cost to you – and the premiums will come right out of your paycheck. As a result, you never even miss the money and you will never have to worry about paying the bill.

Another benefit is that if you have a medical condition, you will still qualify for coverage – and the same amount of coverage as your co-workers!

It is for these reasons that many families obtain all of their life insurance through their employer. And while this all definitely sounds enticing, there are actually some potential problems that you could encounter by purchasing life insurance through your company.

You May Not Have Enough Life Insurance Coverage

Though basic life insurance coverage offered by your company may be free or inexpensive, and while you may be able to purchase additional coverage at low rates, the face value of your coverage may not be enough.

If your untimely death would end up putting your family in financial turmoil, you will probably need more coverage that would be five to eight times more than your annual salary. In fact, some financial experts recommend that you have coverage that is actually 10 to 12 times more than your yearly salary.

Why do you need so much insurance coverage? Because in the event that you do pass away, your salary will be completely gone, which means that your family could be losing a substantial amount of money. The more coverage that you have, the more your family will be cared for financially should you pass away. If your spouse does not work, you have large debts, or you have someone with special needs who is completely dependent on you, you definitely need to have a good deal of life insurance coverage.

Another disadvantage to company-based life insurance? Death benefits that replace your salary do not take any bonuses, commissions or second income that you make into account. It also doesn’t take additional benefits, such as medical insurance and your retirement contributions into consideration.

You Will Lose Your Coverage if Your Job Changes

Just like health insurance, you don’t want to have any gaps in your life insurance coverage. Why? – Because you never know when you might actually need it.

The majority of employees who choose to have life insurance coverage through their work don’t know where their life insurance coverage will come from if they lose their job, decide to change their job, or if their company goes out of business. Typically, you won’t be able to retain your policy in these types of situations, which means that you won’t be covered. And what happens if you pass away and you aren’t covered? Your family could be put into some serious financial trouble.

There are some policies that do allow you to change your group policy to an individual one, however, it will likely be significantly more expensive. Why? Because you will be switching from a term policy to a more expensive permanent policy.

Your Coverage Can Be Tricky If You Develop Health Problems

Another issue that arises is if you’re leaving your job because you have developed a health problem. If you have relied primarily on your group insurance, and then you suffer a medical condition that requires you to stop working, you could end up losing your life insurance coverage – and you will lose it when your family needs it the most.

And, since you won’t be able to get an individual policy at an affordable rate once you develop a health condition, you really could be in a serious predicament.

Even if your health condition isn’t significant enough to prevent you from working, they could impede how much you can work. For example, you may have to go from full-time to part-time. If that happens, your coverage could decrease or end completely.

You Can’t Choose Who Provides Your Insurance

When you opt for employer-based life insurance coverage, you can’t choose the company who provides your insurance. Your employer chooses the provider, which means that they could opt to select a lower-rated insurance company in order to keep their costs down. If that happens, you could end up with less coverage, or your benefits could be negatively impacted.

Your Employer Could Stop Providing Coverage

Your employer isn’t required to offer life insurance coverage. While it’s a great incentive, the company could decide to stop offering it at any time in order to save money. In the event that your company does stop providing coverage, you could be left without a policy, and your family could be put at serious risk, should you pass away.

Your Plan May Not Provide Enough Coverage for Your Spouse

Though your company benefits package may provide health insurance coverage for your spouse, it may not provide life insurance. If the benefit package that your employer does offer life insurance for your spouse, that coverage could be minimal. For instance, your spouse may only have $100,000 in coverage, and that amount won’t go very far, should your husband or wife pass away unexpectedly.

Many married couples think that their family will only be financially impacted if the primary breadwinner passes away; however, that is not the case. Even if your spouse only works part-time or does not make a substantial salary, the loss of that income could significantly affect the financial state of your family should he or she pass away.

Company Life Insurance May Not Be the Most Affordable Option

Even if you do get all of the life insurance that you need for you and your spouse to ensure your family’s financial security through your employer, it may not be the most affordable option available.

It’s always a wise idea to shop around to see if you can find a better rate through another provider. You may find that you can actually get a better rate on premiums – and better insurance coverage – from an individual policy from another provider.

The bottom line is this: While employer-provided life insurance may be beneficial, it’s always a good idea to investigate and have a plan before you decide to accept that coverage. You want to ensure your family is well cared for, which means getting the best life insurance coverage possible.