If your employer offers life insurance as part of your benefits package, it can be a valuable benefit. Many companies provide basic group life insurance at little or no cost to employees.
But there is an important question you should ask:
Is my life insurance at work enough to protect my family if something happens to me?
For many people, the answer is no.
What Is Employer-Sponsored Life Insurance?
Life insurance through work is usually group term life insurance. Your employer purchases coverage for a group of employees, often providing a death benefit based on your salary.
For example, your employer might provide:
- 1× your annual salary
- 2× your annual salary
- A fixed amount such as $50,000 or $100,000
Some employers also allow you to purchase additional voluntary coverage through payroll deductions.
Employer coverage can be a great starting point because enrollment may be easy and some coverage may be provided at no cost.
The Biggest Concern: What Happens If You Leave Your Job?
This is one of the most important differences between workplace life insurance and an individually owned policy.
Your workplace coverage is connected to your employment. If you quit, retire, get laid off, change employers, or your employer changes its benefits, your coverage may end or change.
Some plans offer portability or conversion options, but those provisions vary by plan and may come with different costs or limitations.
An individually owned life insurance policy generally stays with you, as long as you meet the policy requirements and keep it in force.
Your Work Coverage May Not Be Enough
Consider someone earning $100,000 per year whose employer provides life insurance equal to one year’s salary.
Their family receives $100,000 if they die.
That may sound substantial, but consider what the money might need to cover:
Mortgage: $500,000
Income replacement: $500,000+
Children’s education: $150,000+
Other debts and final expenses: $50,000
Suddenly, $100,000 of workplace life insurance may cover only a small portion of the family’s long-term financial needs.
What If Your Health Changes?
This is another reason to consider buying individual coverage while you’re healthy.
Imagine you’re 35 or 40 and rely entirely on your employer’s life insurance. Ten years later, you change jobs and discover your new employer provides much less coverage.
If your health has changed during those ten years, obtaining an individual policy could potentially be more expensive or difficult.
Purchasing personally owned coverage while you’re younger and healthier can help address that risk, although approval and pricing always depend on underwriting.
Employer Life Insurance vs. Your Own Policy
| Life Insurance at Work | Individually Owned Life Insurance |
|---|---|
| Often inexpensive or employer-paid | You pay the premium |
| Convenient enrollment | Requires a separate application |
| May have simplified underwriting | May require health underwriting |
| Coverage may be limited | Coverage can be designed around your needs |
| Connected to your employment | Generally stays with you |
| Employer controls available plan | You select the policy and insurer |
| Usually group term insurance | Term, Whole Life, UL, IUL and other options may be available |
Should You Cancel Your Work Life Insurance?
Usually, no.
If your employer gives you inexpensive or free life insurance, it can make sense to keep it.
Instead of thinking:
Work life insurance OR personal life insurance
Consider:
Work life insurance + personally owned life insurance
Your employer coverage can provide an additional layer of protection, while your personal policy can be designed around your family’s actual financial needs.
How Much Life Insurance Do You Really Need?
There isn’t one number that works for everyone.
A proper life insurance review should consider:
- Your mortgage and other debts
- Your income and how many years your family would need it replaced
- Your spouse’s income
- Children and future education expenses
- Final expenses
- Existing savings and investments
- Life insurance you already own
- Life insurance provided through your employer
For example, someone with a $700,000 mortgage, young children and a family dependent on their income may need substantially more coverage than someone who is single, debt-free and financially independent.
What Type of Personal Life Insurance Should You Consider?
There are several approaches.
Term Life Insurance can provide a large death benefit for a specified period and is often used for mortgage protection, income replacement and protecting children while they are financially dependent.
Permanent Life Insurance, such as Whole Life or certain Universal Life policies, can potentially provide lifetime coverage if properly funded and maintained according to the policy terms.
Indexed Universal Life (IUL) is another form of permanent life insurance that may provide death-benefit protection and cash-value accumulation. It is more complex than term insurance and should be evaluated carefully based on costs, assumptions, guarantees and long-term objectives.
There isn’t one policy that’s automatically best for everyone.
The Bottom Line
Life insurance through your employer is a good benefit—but don’t automatically assume it’s all the life insurance you need.
The biggest potential weaknesses are that your coverage may be limited and may not follow you throughout your career.
A better approach is to determine how much protection your family actually needs and then compare that amount with what your employer provides.
If there is a gap, personally owned life insurance can help fill it.
Need a Life Insurance Review?
At StarWest Insurance Services, we can review your existing workplace life insurance and help determine whether additional coverage makes sense for you and your family.
We can compare Term Life, Whole Life, Universal Life and Indexed Universal Life (IUL) options based on your goals, budget and protection needs.
StarWest Insurance Services, LLC
Serving California Families & Businesses Since 1995
CA Insurance License #0B83846
Life insurance availability, premiums, benefits and underwriting requirements vary by insurer and applicant. Policy guarantees are subject to the claims-paying ability of the issuing insurance company. This article is for general educational purposes and is not intended as tax, legal or investment advice.