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What You Need to Know About Getting Life Insurance Through Work

Feb. 17, 2015
Insurance, Life Insurance
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Life insurance is a great way to protect your family’s future, even in the worst case scenario. However, because it’s not required, it can get lost in the shuffle of your family’s budget. If you’re not sure you have enough to spare to sign up for a policy, employer-sponsored life insurance can seem like a great deal. Plans are often cheap — or even free — and don’t require medical exams.

And for some, getting life insurance through work actually is a great deal. But for those with the greatest need for coverage, it’s important to understand how group life insurance works because it can come up short in a few major ways.

Benefits levels are low

Financial advisors vary on the amount of life insurance they recommend, relative to your salary, but one thing’s for sure: If you have a home and a young family, employer-sponsored life insurance will probably not provide enough coverage. Between your mortgage and your children’s college funds, among other expenses, your life insurance needs are likely to be much more than one or two times your annual salary. And if you’d prefer a permanent life insurance policy, you’ll have to keep looking. Policies employees receive through work usually provide term coverage.

But just because your employer’s life insurance plan isn’t enough doesn’t mean you should forgo it, especially if it’s free. It can be a supplement to a more generous, individual policy. And if your life insurance needs are low, an employer-sponsored policy may, in fact, be enough.

Benefits may not be there when you need them

Even if your employer-sponsored benefits have a large pay-out, you may still want an individual life insurance policy — especially if life insurance is a necessity, and not a nice bonus. Group life insurance policies rarely follow employees who change jobs, and your new employer may or may not offer similar coverage. Budgetary concerns might also force your company to discontinue coverage when it’s too late to get it from another source.

The bottom line

Not everyone should pay more to hold a life insurance plan outside of work. If your need for life insurance is marginal, employer-sponsored coverage could be perfect for you. For example, if you only want life insurance to insure a small amount of co-signed debt, or if you’re nearing retirement, and have no major financial obligations, your employer’s plan could be a great fit. In fact, the older you are when shopping for a policy, the more likely it is that employer-sponsored coverage is the only coverage you can afford.

Your need for life insurance isn’t contingent on your job, and for most, your life insurance policy shouldn’t be, either. If you have a family to take care of, you’ll probably need more — and more stable — coverage than your job can offer.

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