Many people have a life insurance plan through work as part of their overall employee benefits package. It’s a nice benefit to have, but it’s often considered to be adequate coverage by millions of people who don’t have an accurate picture of what their life insurance needs actually are. The thought is often, I have life insurance at work – I’m covered.
Not necessarily.
Even if the coverage is sufficient (but again it almost never is), there are other factors that make employer life insurance plans good as a supplement, but never as the primary policy that you are relying on to protect your family in the event of your death.
Most employer plans offer a flat amount of coverage
Let’s face it, when it comes to making a decision to take a job or not, the amount of the life insurance the employer is offering is seldom a factor in the decision – let alone a deal-breaker. Most employers offer an amount of life insurance that’s more of an after thought than a legitimate policy. And due to IRS regulations, most plans cap out at $50,000, after which you have to begin paying the cost of the policy out of your own pocket.
$50,000 of life insurance is a good benefit to have – especially if you don’t have to pay for it. But it’s seriously below what the average person needs, and nowhere close to what you need if you have a family. It works as an extra plan, but it’s not nearly enough to think of yourself as being adequately insured.
Employer plans are “one size fits all” and may not meet your needs
Life insurance plans come with all sorts of riders that are established to customize a plan to meet an individual’s needs. For example, you can add a mortgage term rider if you have a mortgage that you want to have paid off upon your death. You can also add term riders to whole life plans to provide a greater level of coverage if you have young children.
Employer plans tend to be a single plan with basic coverage. Your employer is not in the insurance business, and won’t or can’t tailor a plan that will meet all of your needs. The coverage they do offer is usually an amount sufficient for them to be competitive in attracting employees, but not to meet anyone’s life insurance needs.
If you lose your job, you’ll lose your life insurance too
If you quit your job or get fired, you can continue on your employers health insurance through the COBRA plan. But you will lose your life insurance policy the minute you are separated from your employer.
Not only will this send you out looking to replace your policy, but it will do so at a time when you may not have a job to pay the premiums. If that makes you nervous, it will present a problem for a new life insurance company too. They’ll want to know how you’ll pay the premiums, and may not be so confident that you’ll be able to do that with an unemployment checks alone.
It’s best to lock in your rates as early in life as possible
Employer life insurance plans tend to be standard. Even if you have to pay part or all of the premium yourself, it will be flat rate that everyone pays as a result of being in the plan. This is the exact opposite of what you have to pay for a private plan.
Insurance companies use several criteria to establish the premiums that you will pay for a life insurance policy. One of the biggest is your age. If you’ve been relying on your employer plan to cover your life insurance needs through the company plan, valuable years may be passing, robbing you of the ability to get lower cost coverage earlier in life.
Think of your employer plan as nothing more than a supplement
Even if you have an employer plan – and certainly you should take it if it’s offered – you should still have your own plan outside of work. Think of your private plan as your permanent life insurance policy and your employer plan as a supplement. Maybe even as a temporary supplement.
Your private policy will allow you to lock in the premium level at a an early age, to have the amount of coverage that you truly need, to add supplements that you consider necessary to your personal circumstances, and to have lifelong coverage.
Having both a private plan and employer plan is an excellent combination. But between the two, the private plan is the more necessary one. If you don’t have your own private life insurance plan, start the process of getting one today.
