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Why life insurance though your employer may not be enough

Updated: Nov 28, 2022

Nowadays, most organizations offer group life insurance as part of their employee benefits. This is undoubtedly a desirable benefit, but it may not sufficiently serve your personal requirements. It is important to realize the scope of the life insurance offered by your employer in order to evaluate how it fits into your personal financial plan. Life insurance through your work typically will not provide adequate protection.

As you may know, life insurance is the first step towards creating a balanced financial plan for yourself. Here are several reasons why the life insurance policy offered by your employer may not fulfill all your financial goals.

#1 - The coverage may not be sufficient. From the perspective of the employer, they want to minimize the cost to the company. It is up to the employer to determine the monetary worth of the coverage, capping the death benefit available to loved ones. As a result, the group life insurance policy may not have a high face-value and the amount of coverage may be too low. It is normally a small amount of coverage. Typically it is good to have sufficient coverage to equal around 10 to 12 times the policyholder’s income, whereas insurance policies through employers are generally in the amount of one or two times your base salary.

#2 - If you lose your job, you may also lose your coverage. Employer-provided life insurance, like most benefits, is not portable. There is also no guarantee that your next employer will offer the same amount and cost of coverage. While some employers may allow you to convert the group life insurance to an individual policy, the premiums are often higher compared to what can be purchased on your own.

Losing one’s life insurance policy is exacerbated if you are leaving a job late in life, or you are departing a position due to health issues. Buying insurance is the easiest and most affordable when purchased while still young and healthy. Life insurance rates increase as a person gets older no matter what. Changes in medical history can also cause a life insurance policy to become more costly and there is the also the possibility of not qualifying for coverage depending on major changes to underlying health.

#3 - No living benefits exist with group life. Employer-provided life insurance policies are often the most basic term life insurance policy with no additional features or benefits. They provide a basic death benefit which is often a limited amount of coverage. In most cases, the employer premiums are paid by the company. The contract is between the employer and the insurer. Therefore, individual employees cannot claim the tax benefits for the life insurance policy.

#4 - Premiums tend to be higher when purchasing additional employer coverage. Some employers allow the option to purchase additional life insurance coverage at an additional out-of-pocket cost. The optional insurance may be very expensive, especially for younger people, as its price is guaranteed for the entire group. Typically, the rate will be a standard rate based on the number of employees, their health and age. An individual policy is underwritten based on your health and age with no outside factors incorporated.

#5 - No guarantee. When you are covered under the employer group life insurance plan, you do not have much say. The features and benefits collectively offered to all the employees are in the hands of the employer. It is also critical to realize that the offered life insurance is a benefit and not a guarantee. Employee benefits are the first thing that organizations cut when they are not performing well.

For all the above mentioned reasons, depending solely on your employer’s life insurance benefit is not the best option for your personal financial plan. Having insufficient life insurance coverage, or not being able to maintain coverage, could be a financial disaster. In case of an unexpected crisis, you may find yourself without financial protection. When such a situation occurs, you may have to start all over again.


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