If your employer offers free life insurance during open enrollment this fall, grab it. But if your workplace lets you buy additional coverage on top of that, ask some questions before spending any money.
Buying group life insurance through an employer is convenient. And if you have a health issue you could find it easier to qualify for a good price; you might have to answer a handful of health questions but generally won’t have to take a medical exam.
But with coverage purchased through an employer, “the employee is generally not in control,” says Brian Ashe, executive vice president of Life Happens, an educational nonprofit supported by insurers and brokers. The terms vary depending on the contract between the employer and insurer. If you want to buy more insurance beyond the freebie at work, you might find a better deal elsewhere.
Here’s what to consider:
How much life insurance do I need?
The free coverage (paid for by an employer) is typically one to two times your annual salary. That’s probably not enough if you have financial dependents. How many years would you want to replace your income if you died tomorrow? Multiply that number by your salary and add enough to pay off debts and fund items like college. If your death wouldn’t hurt anyone financially — you’re single with no children or debts, for example — skip the offer to buy additional coverage.
Can I buy enough?
There will be a limit on how much coverage you can get at work. That cap includes the amount your employer pays for, says John “Jamie” Kalamarides, president of Prudential Group Insurance. So if the limit is 10 times your annual salary and your employer pays for coverage equal to two times your salary, then you can buy up to eight times your salary at work. Will the maximum meet your needs?
What kind of life insurance is it?
The most common type offered through work is term life insurance. Term life lasts for a certain period, and is sufficient for many families. You also might be offered extra features, such as the ability to buy a small amount of coverage on a spouse or children.
Sometimes you can buy permanent life insurance, such as universal life, through work. Permanent coverage lasts your whole life and includes cash value — a kind of savings account that builds over time. It’s more complicated than term life, so make sure you understand how the policy works. The cash value growth on universal life varies and is difficult to predict, so view growth projections conservatively, Ashe says.
How much will it cost?
When buying through an employer, you benefit from the purchasing power of a group, Kalamarides says.
But you may get a better price buying a policy outside of the workplace, especially if you’re healthy, says Craig Simms, senior vice president and chief marketing officer of Vantis Life Insurance Co.
It’s easy to get term life insurance quotes online — and the cost is cheaper than most people think. Most consumers overestimated the cost of a $250,000 term life policy for a healthy 30-year-old, thinking it would cost more than three times the actual average price of $160 a year, according to a 2018 study by Life Happens and LIMRA, a life insurance industry research organization.
When considering cost, ask if the price of term life purchased through your employer will rise as you age, which is common. Outside of work, you have the option to buy a level-premium term life policy, where the price stays the same throughout the years of coverage.
Can I keep it if I leave the company?
Ask if the coverage is portable, which means you can take it with you, and convertible, which means you can convert it to an individual policy you own and control. In addition, ask whether pricing will change if you leave the employer and if the amount of coverage will decrease at certain ages, Ashe says.
With open enrollment around the corner, do a financial wellness check now, Kalamarides says. Look at your current coverage, including life, health and disability insurance, and identify gaps. Then, choose the appropriate benefits and shop for other coverage outside of work, if necessary.