In some industries, competition for good employees is as big a battle as competition for customers.
As part of a benefits package to attract and keep talented people, many employers offer life insurance coverage. If it’s free, as the life policy is usually, there’s really no reason not to take the benefit. Free is (generally) good. But free can be expensive if it prevents you from seeing the big picture.
Here are some important reasons why a life insurance policy offered through your employer shouldn’t be the only safety net you have for your family.
1. The amount of coverage is probably not enough
Life insurance can serve many purposes, but two of the main reasons people buy life insurance are to pay for final expenses and to provide income replacement.
Let’s say you make about $ 50,000 per year. Maybe it’s less, maybe it’s more, but we tend to spend according to our income (or more), so higher income usually means higher mortgages, higher car payments, etc. Everything is relative.
In many cases, group life insurance policies offered through employers are limited to 1 or 2 years of salary (usually rounded to the nearest $ 1,000), as a death benefit. (The term “death benefit” is just another name for the amount of coverage.)
In this example, a group life policy through an employer can only pay a death benefit of $ 50,000, of which $ 10,000 to $ 15,000 could go toward burial expenses. That leaves between $ 35,000 and $ 40,000 to meet the needs of your spouse and family, who will likely still have a mortgage, car payments, loans, and living expenses. But they will have one less income to cover these. If your family is relying solely on the death benefit of an employer policy, there may not be enough left to support your loved ones.
2. A group life policy has limited utility
The policy offered through an employer is generally a term life insurance policy for a relatively low amount. One thing to keep in mind is that the group term policy does not generate cash value like other types of life policies. This makes it an ineffective way to transfer wealth to heirs due to its limited value.
Again, and to be fair, if the group policy is free, the price is correct. The good news is that you can purchase additional policies to help ensure that your family is not in an impossible situation at an already difficult time.
3. You do not own the life insurance policy
Because your employer owns the policy, it has nothing to say about the type of policy or the amount of coverage. In some cases, you may be able to purchase supplemental insurance through the group plan, but there may be limitations on the options.
Consider creating a policy coverage strategy for your property that can be tailored to your specific needs. Maintain the group policy as “supplemental” coverage.
4. If you change jobs, you lose your coverage
This is even worse than it sounds. The obvious problem is that if you quit your job, get laid off, or get laid off, your employer-provided life insurance coverage will disappear. Your new employer may or may not offer a group life policy as a benefit.
The other issue is less obvious.
Life insurance becomes more expensive as we age, and as perfectly imperfect human beings we tend to develop health conditions as we age, which can lead to more expensive policies or even make us unsafe. If an employer group policy mistakes you for a false sense of security, you may not buy the right coverage when you’re younger, when coverage can be less expensive and easier to obtain.
As with most things, it’s best to look at the big picture with life insurance. A group life policy offered through an employer is not a bad thing, and at no cost to the employee, the price is certainly attractive. But it is probably not enough coverage for most families. Think of a group policy as additional coverage. We can then work together to design a more comprehensive life insurance strategy for your family that helps meet your needs and yours.