The Truth About Your Employer-Paid Life Insurance

It is common for most employers to offer their full-time employees a basic life insurance policy with a coverage limit equivalent to your yearly salary. Sounds great doesn’t it? Free coverage and you can’t be denied! It’s perfect, and really, what more could you want? More life insurance, that’s what!

When you look past the overall perks of employer paid life insurance (no cost to you and guaranteed coverage), you are able to see why it really may not be good enough.

Limited Coverage

Like we mentioned above, employer paid life insurance is typically offered at a coverage rate equivalent to your annual salary. The life insurance company may allow you to purchase additional life insurance through them at group rates, but again, the coverage level is based off of your salary – up to 5 times what you make in a year. Floridians have an average annual salary of $40,750 – and when it comes to life insurance, that really isn’t much. So, you should definitely consider purchasing the extra life insurance, and maybe even a little more from outside of the office.

To help you determine how much coverage you need consider the following factors:

  • You and your spouse’s combined annual income
  • Your family’s current lifestyle
  • How much of your mortgage is still unpaid (or how much you pay in rent)
  • How much of your vehicle (or spouse’s or child’s) is still owed
  • The amount of unpaid student loans you or your spouse have
  • And the amount of personal debt like credit cards that you owe

If you were to pass away unexpectedly, would your surviving spouse be able to handle the mortgage or other bills by themselves? Would your family be able to continue their current lifestyle, or would they have to makes changes and sacrifice some of the extra things you do as a family? A life insurance settlement can help ease your mind about these things by providing the funds necessary to handle the financial situation after you are gone.

If one or five times your salary will barely cover your family, then you need to seriously consider adding an additional policy for yourself.

Coverage Expires

Employer-based insurance plans are only good for as long as you are with the company. If you leave, you may only be able to take some of the coverage with you. Also, group life insurance plans are typically term policies which means, once you reach a certain age or reach the end of the policy’s term, you are no longer covered. Purchasing outside life insurance will allow you to find more permanent coverage.

Termination of Coverage Possible

Your employer paid life insurance plan is offered based on an agreement between your employer and the insurance company. If your company decides to not renew their contract, you can lose your coverage. Also, if they opt to save themselves the money, they may not renew with anyone else, which leaves you without a life insurance policy.