Why you Shouldn’t Get Your Life Insurance Through Work

August 20, 2018

Does your job provide life insurance as one of your benefits? Chances are it’s not free of cost. You likely have to pay for it. If you do have to pay for it, there are several reasons why you shouldn’t get your life insurance through your employer. Now if your employer pays for your insurance, you can take it. But don’t make the mistake of making it your only policy.

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It’s Not Enough Coverage

Take a close look at how much coverage your employer provides. Even if it’s free of cost to you, look at the coverage. Chances are that it doesn’t exceed $100,000. That’s the average maximum coverage any employer provides.

Now let’s think about that for a second. Let’s say you make $100,000 per year. If you were to die today, could your loved ones live on $100,000 for long? If the coverage is equal to your salary, your relatives will likely blow right through that money and not in a bad way. If your loved ones will live off the life insurance proceeds as well as use it to fulfill your final wishes, $100,000 won’t get them very far.

In fact, it’s recommended that you carry between 5 to 10 times your annual salary. This means if you make $100,000 per year, you should carry a $500,000 to $1,000,000 policy. It’s okay if your employer doesn’t offer this much coverage. You can find private policies that are affordable with this level of coverage.

You Might Pay too Much

If your employer doesn’t supplement the cost of the employer-sponsored life insurance, you might pay higher premiums than necessary. Before you accept the policy, get quotes from a few life insurance agents. Don’t forget to do an ‘apples to apples’ comparison.

For example, don’t compare a $100,000 policy to a $1,000,000 policy. Obviously, the $100,000 will probably be a lot cheaper. While it might seem like the better deal, it doesn’t leave your loved ones in a very good financial situation. Tyr to get quotes on the same amount of coverage or more coverage, never less. This way you can tell if the rates from your employer are worth it.

You Can’t Customize a Work Life Insurance Policy

When you shop around for private life insurance, you probably ask for the terms that you want. For example, if you are looking for term life insurance, you may only need coverage while you hold a mortgage. Some people only pay for term life insurance until they reach retirement age.

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Whatever the case may be for you, there is probably a unique amount of time you need coverage. Let’s say it’s 15 years. If your employer only offers 20-year policies, you could pay more for a policy that you didn’t intend to carry. This could cause you to waste money that you could have saved for your retirement or investing.

You Can Lose Coverage if You Change Jobs

Your employer-sponsored coverage is only good as long as you stay with that employer. If you quit, get fired, or the company closes, the policy won’t be in existence any longer. If you are in poor health, it could leave you in a bad position. You may not be able to get coverage elsewhere, which may leave you without any life insurance.

Even if your employer provides a conversion provision in the policy, allowing you to convert the policy to a private policy, you can only use that company. If the rates are high or the coverage is less than you might need, it could still leave you wishing you had more.

Your Spouse Probably Doesn’t Have Coverage

If your employer does provide your spouse with coverage, it probably isn’t enough. Just as most employers don’t provide more than $100,000 for employees, the same is true for spouse coverage, if they offer any at all.

Many people make the mistake of assuming that they don’t need coverage on their spouse, especially if their spouse doesn’t work. What you fail to realize is that there are reasons you may need coverage on them. Whether your spouse doesn’t work at all or only works part-time, it’s about more than their income.

If your spouse dies, you probably aren’t going to go right back to work. If you don’t have any paid-time-off available, you won’t have any income. You also need money to take care of his/her arrangements and keep the kids settled, if you have any. The expenses you may realize and the income you may not make during that time could cost you more money than you realize.

Now if your employer pays 100% of your employer-sponsored life insurance, by all means take it. If you have to pay for it, though, you may want to look at other options. If it turns out that your employer’s insurance is the cheapest, then go for it. But keep in mind that if you lose your job or change jobs, you will need to look for insurance again. As a precaution, it’s a good idea to have supplemental life insurance so that in the event that something does happen, you are still covered.

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