Is My Employer-Provided Life Insurance Enough?

July 22, 2021

Is My Employer-Provided Life Insurance Enough?


You know you need life insurance, and your employer is offering it as part of your employment benefits package. Of course you’ll opt-in, no thought necessary, right? Well, you might want to think again. While employer-provided life insurance coverage could be just what you need, it’s more likely that it could leave you unprotected when you need support the most.


What Is Employer-Provided Life Insurance?


Policies and provisions vary across companies, but there are some general rules when it comes to the life insurance coverage you can expect from an employer. Firstly, it’s a form of group life insurance and is generally set at a specific dollar amount when offered by smaller companies. Larger businesses might instead offer a multiple of your salary, often one to three times what you currently make. While the life insurance coverage provided could seem like a great deal initially, there are some key points to keep in mind when deciding if it’s right for you and your family.


How Much Life Insurance Do I Need?


One shortcut that will at least give you a ballpark estimate and get you on the right track is calculating known financial obligations and then subtracting assets. The remaining sum will still need to be accounted for, and that is where your life insurance comes in. But this is the bare minimum needed. And even though it might square away immediate needs and settle debt, a minimum amount does absolutely nothing to provide for your loved ones’ needs going forward.

Now we admit that it’s nearly impossible to calculate to the cent precisely how much life insurance you’ll need. There are so many factors at play, including potential life changes or financial shifts that you can’t see coming. But this is a first, key question to answer. Because until you know the sum that will be able to comfortably support dependents and dispatch with debt, you can't really get your arms around the central question of whether an employer’s offer is enough. 

But you can start by taking an honest look at what it costs to maintain a comfortable standard of living now, paired with the amount necessary to provide for future needs. From specialized medical care and everyday or annual expenses, to years of schooling, weddings, and charitable giving, there’s a lot to factor in. You’ll quickly see that what your employer is offering likely can’t stand up to your loved ones’ future financial demands.

In general, the rule of thumb that you’ll see over and again is that if you are the main provider for your family and if debt is likely to claim a piece of insurance benefits, then 10x your current salary is a pretty safe number. Some might say that more is necessary. Taking time to discuss your personal financial situation with your trusted advisor is the best way to calculate the ideal amount. 


The Benefits of Employer-Provided Life Insurance


There are distinct advantages to the life insurance that your employer has opted to include in your benefits package. Here are a few:

  • It typically doesn’t require much (if any) of your own out-of-pocket funding. 
  • You probably won’t have to take a medical exam to qualify for coverage.
  • It’s convenient because the company has done all the legwork for you.

Yes, those are major wins and undeniably, employer-provided life insurance goes far to remove common hurdles to obtaining coverage. If your health isn’t the best, it could be next to impossible to pass an exam and qualify otherwise. And if just the thought of investigating life insurance options has you feeling ill, then it can seem like a real saving grace to merely fill out basic paperwork naming a beneficiary and wash your hands of it. In the case that you don’t have dependents or personal or co-signed debt, employer-provided insurance is probably enough, if you need it at all.


Employer-Provided Life Insurance Reality Check


Not much is asked of you, and now you have a couple years’ pay lined up should life deal you its worst. You might feel that you’re set, that there is nothing more to consider here. Well, think on these points:

  • One to three times your salary falls far short of the recommended 10 or more times annual income level.
  • Coverage can end at any time and for any reason that your employer decides.
  • Your benefits are tied to your job so if you happen to be laid off, retire, or need to switch jobs the coverage will end.
  • If you leave the company and don’t have the best health or are over a certain age, it could be very hard to qualify for another policy.
  • The ability to convert coverage and retain coverage after leaving a company is rare and often costly.
  • Because your employer has selected the provided policy, your options will be limited and you could miss out on valuable coverage.

If you work uninterrupted at your current company for the coming decades, never deal with declining health, don’t take on much debt and don’t have dependents to support, then relying on employer-provided coverage could make sense. But if you’d like a bit more assurance in what the future will bring to your loved ones, it’s time to look into carrying an independent life insurance policy that’s based solely on your unique needs.


A Hybrid Option: Supplement Employer-Provided Life Insurance with A Second Policy


If you don’t have coverage currently and want to take advantage of what your company offers, there’s nothing wrong with that, so long as you realize that you’re likely going to need more. To that end, it’s perfectly legal and oftentimes advisable to carry more than one life insurance policy. There are various best practices and protocols to consider, and your Althans advisor can help you understand the logical path forward. 

No one actually enjoys talking about the day when they’re gone, but we can work past that discomfort by instead thinking of our loved ones, our cherished causes, and the future we can make possible with a little planning now. That way we can remain part of what comes, even if we can’t be there in person.


Your Source for Sound Life Insurance Advice


By its very nature, life insurance is a deeply personal decision that you and your family will need to consider closely. Taking the opportunity now to personalize coverage based on your highly specific needs is the best way to care for your loved ones’ future and gain some peace of mind in the present. If you’re unsure and want some solid advice informed by experience and genuine care, don’t hesitate to draw on our knowledge. At Althans we are honored to serve our community and would be happy to help you plan your legacy. Get in touch today.