Is Employer-Provided Life Insurance Enough Coverage?

Supplementing group life insurance ensures your beneficiaries are taken care of—regardless of your employment status

Group life insurance policies provided through employers are a great benefit to have. Especially for young adults just starting in their careers or people who can’t necessarily afford a high premium, group life insurance policies provide a little bit of a cushion to help their loved ones in the event of their death. 

With that being said, many people find that their group life insurance policy simply doesn’t provide the level of coverage needed to support their families long-term. As people search for affordable life insurance coverage, many assume their best option is through their employer. However, in practice, employer-provided coverage isn’t always the best option. Let’s talk through how group life insurance works and why you may need an individual life insurance policy as well. 

How Does Employer-Provided Life Insurance Work?

Employers offer group life insurance as an employee benefit, often at a lower cost or free to an employee

Employer-provided life insurance is generally a group term life insurance option that some employers offer as part of their benefits package. Buying or opting into employer-provided life insurance will provide benefits to your beneficiaries should you pass away. This can help your beneficiaries with expenses after your death and provide a substitution for the salary that they depended on. 

Group life insurance coverage is typically determined by either salary or position within the company depending on your employer. The great thing about employer-provided coverage is that employers pay part or all of the premiums for your coverage. So, really all you need to do is opt-in to start your coverage. Keep in mind, though, your policy is only effective when you are employed at your company and the coverage amount tends to be very minimal. That’s why many people question whether or not they should supplement their employer-provided coverage, or even shop the market for their policy. 

The Benefits and Drawbacks of Employer-Provided Life Insurance

Group life insurance is simple, but it may not give you the level of coverage you need

With premiums almost always paid for—or mostly paid for— by your company and automatic opt-ins to receive coverage, many people stop their search for life insurance coverage here. Depending on your own particular needs, this coverage absolutely may be enough for you. Keep in mind, though, that many people find that they need more coverage.

Benefits of Group Life Insurance

Employer-provided coverage is a great first step for getting a life insurance policy. Here are some reasons why you may want to opt into your life insurance benefit at work:

  • Simplicity – With employer-provided life insurance, adding coverage is typically simple. In most cases, all you have to do is opt into coverage.  
  • Guaranteed Coverage – The insurance provided by your employer is almost always guaranteed. So, if you have a serious medical condition and struggle to find an affordable life insurance policy on the market or have been denied life insurance coverage in the past, you will find it to be much easier to get insurance through your employer. 
  • Early coverage – Life insurance can be a big financial undertaking for someone early in their professional life. Employer-provided coverage can give you a head start. 

Drawbacks of Group Life Insurance

While employer-provided life insurance is quite simple, that doesn’t mean it’s always the best option. Or, at the very least, it shouldn’t be your only form of coverage. Here are some reasons why you may not want to depend only on your employer-provided coverage: 

  • Reliance on Employment – In almost all cases, your life insurance policy is tied to your active employment. If you lose or leave your job, the insurance policy is typically devoid. While you may have the option to convert your life insurance policy, it can be a bit pricey. As you look to the open market for policy rates, prices tend to get more expensive as you age and your health declines. 
  • Few Coverage Options – Employers typically only offer insurance policies from one insurance carrier. Because of this, you won’t have the option to shop around for policies that best fit your needs. 
  • Low Coverage – The amount of coverage offered is dependent on your employer and your situation within the company. While this may be enough to get you started, the amount of coverage tends to be low. You may need more coverage than your employer offers.

Can I Rely Only On My Group Life Insurance Policy?

Your group coverage may not be enough, but finding an individual life insurance policy can help

Especially if your group life insurance is free or mostly covered by your company, there’s no reason why you shouldn’t opt into your policy. However, the coverage provided by your employer typically isn’t sufficient enough to support your family, should you pass away. That’s why many people can’t rely on group coverage alone. If you’re on the fence about finding an individual life insurance policy, here are some reasons why you may want to consider coupling your group and individual life insurance policies:

  • You will have no coverage if you lose your job – As we mentioned earlier, employer-provided life insurance coverage is tied to your active employment with the company. If you have dependents you need to cover, with or without a job, you will want to consider an individual life insurance policy. 
  • Coverage gets more expensive as you age – Say years down the line, you end up switching jobs, and your new employer does not offer life insurance coverage. Now, as you shop for life insurance policies, premiums will be more expensive than they would’ve been for you years ago. The younger and healthier you are, the less expensive term life insurance policies tend to be, so looking at policies that aren’t job-dependent ahead of time will ensure you get the most affordable life insurance policy possible.
  • You may need more coverage than what’s provided – Group life insurance policies tend to be pretty simple. Policies typically don’t consider the extent of your policy needs. So, if your beneficiaries would need more support beyond your group coverage, you must find an individual life insurance policy. This additional coverage may help your dependents pay for college, your spouse afford your mortgage, or your partner raise a large family.  
  • You may find cheaper coverage elsewhere – We mentioned above that because employers typically only work with one insurance carrier, you won’t have the option to shop around if you choose to rely only on your job-based life insurance. You may be able to add various coverage on top of your baseline policy, but, of course, that will still be job dependent and may not even provide you with the full coverage you need. You may assume that added coverage will be more affordable with the insurance carrier your company works with, but that’s not always the case. As you consider individual coverage, be sure you shop around. There’s a high chance you can find more affordable coverage with another company. 

How Much Coverage Should I Have On Top of My Group Life Insurance Policy?

Consider the needs of your dependents when deciding how much coverage to supplement

How much individual coverage you couple with your group policy depends entirely on your own unique situation. Here are some guidelines to follow when considering the amount of coverage you need, and how much coverage you need beyond your job-based coverage. 

  • Your salary – It’s a good rule of thumb to have between six to 10 times your salary in life insurance coverage. 
  • Your dependents – Consider who in your life will need to be financially supported if you were to pass away. If you have young children, consider what they will need as they grow up and how much income would be needed to cover those expenses. When you consider your dependents, think of their everyday needs. 
  • Your large costs – Many parents want to help their children pay for large expenses, like college tuition. Consider any large costs for your family when thinking about the coverage you need. 

With all of this in mind, take a look at the policy you have with your employer. More than likely, there are going to be gaps in what you’re given and what you need. While you may have the option to add supplemental coverage through the insurance carrier your employer works with, you should always shop around on the market. You will have a wider range of options so you can find affordable term life insurance policies that fit both your coverage needs and how much you can afford every month. 

Employer-provided life insurance policies can be a great way to get a simple life insurance policy in a very affordable way. That being said, sometimes the amount of coverage offered isn’t quite what you need, and that’s where adding an individual life insurance policy comes into play. If you’re considering finding an individual life insurance policy, now is the time to start looking. The longer you wait, the higher your insurance premiums will be. Find an affordable life insurance policy today and rest assured your family will be taken care of in the event you pass away.