Life insurance through work is a great perk. But a question we get all the time is how important is it to have life insurance outside of work? In fact, one of the biggest misconceptions about life insurance is that if you have coverage through work, you’re set.
Life insurance through your employer is a great work perk. However, if you have a spouse and children who rely on your income, employer-provided life insurance can leave you substantially underinsured and often without coverage once you change employers.
It can be tempting to try and check life insurance off your to-do list when your employer provides it, but you need to focus on your own family’s requirements versus the level of coverage provided.
It’s important to understand the drawbacks of relying on this type of life insurance offering.
What is Employer-Provided Life Insurance?
Employer-provided life insurance is exactly as it sounds – it’s group life insurance coverage that is offered by, or paid for by your employer. With this type of policy, you generally are guaranteed coverage and inclusion may be automatic.
Premium amounts are typically not dependent on your age or health, as everyone in the company has the same rate. Coverage amounts are usually two to four times your annual salary and there is no medical exam.
Where Does Life Insurance Through Work Come Up Short?
Employer-provided life insurance is an excellent addition to existing, individual life insurance coverage because it’s often free through your employer.
However, it often falls short of what many families would require to replace their income if you were no longer there to support them with up to retirement age.
How Much Life Insurance Coverage Do You Need?
Before you can decide if employer-provided coverage is adequate, you must understand how much life insurance you really need.
When you have financial dependents – like a spouse, children, or even debt co-signers – most experts recommend having coverage that’s at least 6 to 10 times your annual income.
Remember, employer coverage is usually only offered at two to four times your annual salary. If the standard work coverage is all you have, and you have a family who relies on your income, then you’re probably underinsured.
See also: How Much Life Cover do I need?
(Lack of) Portability With Life Insurance Through Work
Your life insurance policy should go where you go. But, employer-provided policies are usually job dependent, which means that if you leave your job, coverage will end.
When factoring in your employer-provided life insurance coverage, make sure you understand the terms of what happens when you leave your job.
(Lack of) Long Term Cover With Employer-Provided Coverage
While it’s true to say and important to understand that you will require a lower level of life insurance after you retire, you may still want to leave a lump sum and or cover funeral expenses will beyond this. Group employer schemes, don’t allow you to take your cover with you beyond retirement, which is another important reason to supplement it with a private policy.
Private life insurance offers cover up to age 91 next birthday.
Ken O’Gorman – QFA
OneQuote.ie | Smart Financial Protection