One of the most commonly asked questions from prospective life insurance buyers is, “I already have life insurance through my employer — why do I need more?”
It’s a great question. Do you really need a personal life insurance policy if you’re covered by your employer?
First, if you work in a place that provides life insurance, consider yourself lucky. There is virtually no downside to life insurance provided by your workplace — you get coverage at a group rate, which means lower premiums. Plus, the state of your health matters less, since your policy is covered in the group rate. In fact, life insurance through your employer is a type of no exam life insurance, since no medical exam is required.
The amount of workplace coverage differs by workplace, but the employer always chips in some or all of the premium fees. The good news is that even if you have to chip in as well, you don’t really feel like you’re paying, since the money comes out of your paycheck, not out of your bank account.
Now that we’ve touted all the wonderful things about employer-provided life insurance, your next question is probably, “If it’s so great, why do I need personal life insurance?” Good question!
There are a few issues that can arise with employer-provided life insurance.
- It may not be enough coverage. Group life insurance plans from employers typically offer 1-2x your annual salary as coverage. While you may be able to increase your coverage at the same low-cost group rates, that still may not be enough! You may have a big family, a lot of debt, or a high standard of living. Whatever your situation, many people find that the coverage offered through employer-sponsored life insurance programs isn’t enough.
- Your life insurance is intertwined with your job. The job market is volatile, which means that if you lose/leave your job for any reason, your life insurance policy may not be valid anymore.
Some life insurance providers allow you to take your policy with you after you leave, and this is recommended, since the policy isa no exam life insurance policy, which means your health won’t be evaluated and you’ll get the same rates that you got when you originally signed up for your policy. For someone who leaves their job after a year, it’s not the biggest deal, but if someone has been working at a job for ten years and then leaves, it’s a huge advantage to stick with their original rates and no medical exam rather than starting over and having to reassess your health and more.
That’s all assuming that your policy can be transported. But what happens if your
company’s life insurance provider doesn’t let you take the policy with you? Then you’re left in the above situation, having to start over from scratch. You may get coverage with your new employer, but you can’t predict whether the premiums will be the same. And if you don’t find a new job right away, you will have some time with no coverage at all. This is when we would say that having a personal life insurance policy is crucial — and it’s best to get it when you’re young. Younger people are usually in better health, which means they’ll get lower premiums.
- The rates aren’t necessarily better. If you’re young and in good health, you may be able to get a better rate through a personal life insurance policy than with your employer-provided policy. So not only will you get a better rate, but you won’t have to worry about your life insurance being tied to your livelihood. Employer-sponsored life insurance can also increase in price as you get older, usually every five years after age 35. This means you may end up with really high premiums, much higher than you would pay through personal life insurance.