Is It Enough to Have Life Insurance Through Work?

Joseph Meyer
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“I Don’t Need More Life Insurance – I’m Covered at Work”

No, you may not need more life insurance even if you have it through work. The primary source of life insurance that most people rely on is their employer. In other words, if you have a life insurance plan through work, you probably think you’re all set.

But that’s not necessarily the case.

Most employer-based policies contain exemptions for key life events. For instance, if you aren’t working on your last day, your employer’s plan probably won’t help your family receive income insurance.

What’s more, your employer’s life insurance plan may not match your financial situation. A traditional employer-based life insurance plan may only provide enough coverage if you have dependents and a guaranteed income, which is typically the case with people in their 20s and 30s. But once you quit working, you may not be able to get coverage if you have no dependents and you have less than a guaranteed income.

The key is to make sure you have enough life insurance – regardless of whether you get it through your employer or on your own.

What If You Lose Your Job?

Life insurance isn’t sexy. It’s boring. Most people hate the idea of buying life insurance or seeing a salesman. Still, it’s a necessary evil for most people, given that you’re ultimately responsible for your loved ones and your finances, and that life is so damn unpredictable. You could die tomorrow if you take a reckless risk … and, particularly if you don’t have kids, life insurance is one of the best wealth transfers possible. Debt is a burden. A car is a burden. Life insurance improves your family’s financial situation instantly if you die.

I’m not going to lie. Nothing beats having a healthy amount of emergency savings to tap into if you lose your job. It is, by far, a best-case scenario. But let’s say you don’t have any emergency savings. Long term investing and a solid income is what keeps you stable, and it’s what led to you having a job you enjoy. And then, your job’s next to being outsourced because of automation. And you’re fired.

What If You Develop a Health Condition Before You Lose Your Job?

It’s important to have life insurance while you’re still employed. Even if you’re in the best of health, there’s still a chance something might happen.

A mid-life crisis, health condition, or sudden misfortune can leave you temporarily or permanently disabled. In addition, losing your job has a strong correlation with a higher risk of dying. If you’re not already covered, you really shouldn’t wait until you lose your job.

Many insurance companies offer short term disability insurance. These plans cover you for a few months if you have a health problem. And you don’t need to have a disability to qualify … you simply have to get sick. This is more like temporary life insurance than long term coverage.

Longer term disability plans are designed for people who are planning to quit work within five to ten years and receive lifetime benefits. The amount of cash benefit you can receive is smaller but the policies are easier to qualify for. And you won’t have to worry about a medical exam. To qualify for a long term disability through work, you would have to have a pre-existing condition.

Keep Your Life Insurance Through Work – But Add a Third Party Policy

With workplace benefits, you’ll often have two or three levels of life insurance coverage. This is typically called basic, supplemental and term life. Basic provides the most coverage and will replace your base salary and certain benefits. Supplemental provides additional coverage for dependents, additional income and even college expenses if you have children. Term life insurance covers you only in case of death, and the coverage amount is up to the amount of coverage you want. Premiums from a term policy are lower than the ones for basic or supplemental.

One thing that we need to point out is that most people are unaware of how much life insurance they need. Some insurance companies have a financial worksheet to help determine the amount.

Other companies offer a different service that you may not have though of. You can buy a little bit of life insurance through a regular life insurance provider. This policy is known as a third party policy.

Let’s look at some reasons why you should have a third party policy through a regular life insurance company.

Why You Should Lock in Your Rate on a Private Policy As Soon As Possible

A lot of workers believe that they have life insurance through work, when in fact that’s not the case. But even if your company does offer some coverage, is it the best that you can do? Evidence indicates that many employers’ term insurance plans are inferior to a low-cost individual policy.

Some workers are fortunate enough to be offered life insurance through work, and they wisely take advantage of it. Although you can’t assume that your employer is offering the best private life insurance policy, you should probably check your coverage and determine whether you can do better on your own.

It’s always a smart thing to check out your private options, not just to see whether you can pay less and get better protection, but also to see if you can get more coverage. Workers who are approaching retirement age may be able to add incentives that will help protect their family after they’re gone.

If the bottom line is "You Can Do Better," here’s how to make sure your family gets the protection it needs.