Is Your Company’s Group Life Insurance Enough?

Eric Rosenberg | Life Insurance | 21 Oct, 2014 | No Comments

The first time most of us see life insurance is through work. Employees of large companies are often offered health, dental, vision, disability, and life insurance through work. When you sign up for your first benefits enrollment and go through open enrollment each you, you’ll get the opportunity to select and increase your life insurance coverage. But is that enough to secure your family’s future?

Benefits of Group Coverage

Insurance through an employer is known as group life insurance. All of your insurance plans through your employer are group policies that cover everyone participating from your company.

Group coverage is great because it pools the risk of everyone, or the entire group, into one policy through your employer. While as an individual if you get cancer the treatment cost is very high, if one employee gets cancer from the entire company the cost is relatively low, as it is spread throughout the group.

The same works with group life insurance. The cost to the insurance company if one person dies is a large payout, but the risk that many people will die is relatively low. Because the risk is spread among a larger group of people, the insurance companies are willing to offer you coverage at a lower cost than if you were to get coverage on your own.

As an added benefit, most employers offer a basic coverage, like one time your annual pay, for free at the employer’s expense. Beyond that you may get a discounted rate subsidized by your company, lowering the cost of larger policies.

Downsides of Insurance through Your Job

The biggest downside of insurance through your employer is that the plan is only yours at that rate as long as you keep the job and the employer continues to sponsor the plan. If you ever leave the company for a new job at a new employer, or decide to become self-employed, your group insurance plan goes away.

Some plans allow you to take them with you when you leave, but when you do that the cost often rises as the employer subsidy and group benefit are no longer lowering the cost.

In addition, group coverage usually has a lower limit than many people would need to truly protect their families. Many companies limit coverage at 5 times or 10 times your annual salary with a cap of $500,000. If you want to cover your family with a $1,000,000 policy, you won’t be able to do that solely through your employer group life insurance policy.

Getting Your Own Insurance Protects You

If you sign up for your own life insurance policy, you don’t have to worry about losing your coverage because of a new job or because your employer’s benefits offering changed. You own your policy and can take it with you if you change jobs, retire early, or move to a new city, state, or anywhere in the world.

Your rate is locked in when your policy goes into effect and never changes for the entire term you chose. Whether you chose a 10 year, 20 year, 30 year, or even longer life insurance policy, the monthly payment will always be the same and you can rest assured that your family is covered in the event something bad happens to you.

And while your employer may limit your group life insurance policy to a $500,000 limit, you may want to make sure your family is covered with ten years of expenses in case something happens to you. If you make $100,000 per year, you will need a $1,000,000 policy just for income replacement. If you want to leave your family with enough to send your kids through college too, tack on another $60,000 to $200,000 per child. All of a sudden $500,000 in coverage doesn’t seem like that much.

Flexible Policies That Meet Your Needs

When you get a life insurance policy through your employer, you don’t get any options on how the policy works. Your employer will do its best to offer a one-size-fits-all option for everyone, but everyone doesn’t have the exact same needs.

When you go get your individual policy, you can work with your advisor or agent to pick the right policy for exactly what you need. You can pick the term, the coverage, and work with them to find the best insurer that offers the best monthly cost.

At work, you simply don’t have that level of flexibility.

What is Right for You?

For most people, a combination of individual and group insurance from work will give you the best coverage for your family at the best price.

I took my employer’s group life insurance policy at 5 times my annual salary in addition to short-term and long-term disability to help with income replacement in case I am injured an unable to do my job. Plus, the low cost coverage from work is a huge benefit in case of a serious accident.

On top of that, I am getting my own policy, that is much larger, that will protect my wife and future kids in case I decide to change jobs or become self-employed full time.

There is no better time than today to get your individual life insurance policy. The cost will only rise each month you wait as your risk factors will change.

If you don’t know where to get started, take a look at the life insurance estimate tool on this site. Just enter a few details about yourself and you’ll have an idea of what your ideal policy will cost in just a few minutes. Check it out today!

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