Plan For Tomorrow | Is a life insurance policy through your job enough?
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Is a life insurance policy through your job enough?

Wednesday 8 September 2021 | Reading Time: 6 minutes

Most people get life insurance through their employer because it's easy and convenient. All you have to do is sign up. You don’t have to take a medical exam, and you only have to fill out one form and name a beneficiary. The problem, however, is that the coverage you get through your work probably won’t be enough. To secure the appropriate amount of coverage for you and your family, it's vital to consider buying a supplemental or individual life insurance policy. Here’s why.

Why relying on your employer-provided plan might not be enough

Life insurance offered by your employer is often included as part of your overall benefits package. While some life insurance coverage is preferable to none at all, you may want to ask yourself whether or not relying just on the life insurance offered through your job is enough. There are some ways employer-provided life insurance may fall short, such as:

Limitations to coverage

While the coverage provided by your job may be low-cost, it might not offer enough coverage. The U.S. Bureau of Labor Statistics, for instance, found that the average life insurance benefit amount for flat-dollar plans in 2020 ranged from $10,000 to $25,000.2 If you are single with no dependents, this amount may be enough for you. On the other hand, if you’re married, have children, or own a home, or you’re planning for any of those things, that amount of coverage likely won’t go very far. There’s no one-size-fits-all amount, but various professionals in the life insurance space may recommend purchasing coverage that is several times your annual income.

Policy options may be restricted

Work life insurance policies are part of group life insurance plans, which are completely determined by your employer. This means you’ll likely have zero say in the details of the policy and you can’t customize it to fit your needs. You’ll also have limited coverage for a spouse.

Lack of control

Your employer can decide to drop its life insurance plan at any time. If they do, you may lose your coverage immediately, without any say in the matter. Your employer is the policyholder, not you, so you’ll likely find it difficult or impossible to talk to the insurance carrier.

Changes in employment

Your life insurance through your employer is tied to your employment status, so if you decide to leave your job, retire, or get laid off, you will likely lose your coverage. If you can take your employer-sponsored policy with you, you probably won’t receive the pricing benefits provided by the employer. This means you’d be paying more money for coverage that likely isn’t sufficient.

Should I consider an individual life insurance policy?

Forty percent of Americans are either without life insurance or are underinsured, according to Life Happens and LIMRA’s 2021 Life Insurance Barometer Study.1 Most people don't even realize that the coverage provided by their job may be insufficient. While employer life insurance is a great starting point, you must consider getting your own policy if you want to acquire the right amount of protection. Individual life insurance plans offer:

Get the coverage amount your need

Coverage through your employer can vary and often may not fully address your needs. Additionally, there are many different types of life insurance policies available to you and the policy options offered through your job could be very limited.

Affordable options

Many people feel that they simply can’t afford to buy additional life insurance. But the fact is, individual policies can often be affordable based on your budget. Certain term life insurance policies, for instance, can cost as little as $160 a year.1

What are the different types of individual life insurance?

Purchasing individual life insurance can go a long way toward providing the kind of financial stability for your loved ones that an employer-based plan may not. There are a variety of choices worth exploring, but these are the two main options:

Term life insurance

Term life insurance has level premiums that last for a set number of years (the term). This life insurance generally includes a death benefit in the form of a lump sum of cash that’s paid out to a beneficiary by the life insurance company if you die while this coverage is active. This lump sum can be used for a variety of things, such as burial expenses, mortgage, and debt payments, living expenses for your family, or donations, generally tax-free. Additionally, you may have the option to convert your policy to permanent coverage before the term ends. After the term expires the policy may either terminate or automatically renew annually. If your policy is slated to terminate at the end of the term period, then in order to continue the coverage you may need to shop for a new policy.

Permanent life insurance

Permanent life insurance premiums are used to maintain the policy’s death benefit and may allow the policy to build cash value that can be borrowed by the policy owner, which is another great benefit of permanent life insurance. There is often a waiting period after the purchase of permanent life insurance before borrowing is permitted. This allows potential cash value to accumulate in the policy. But, after that waiting period expires you’ll have the option to withdraw potential cash value to help you when you need it most. If you have an emergency medical issue, for example, the potential cash value can be used to pay for health costs. Many policyholders also tap into potential cash value for other reasons such as building a nest egg for retirement, building a fund for college costs, or to help supplement retirement income, to name a few.

Watch this short video to learn more about these two types of policies.

Talk to an agent

When you’re considering life insurance coverage beyond what your employer offers, it’s a good idea to review your current policy and talk through options with an agent. A financial professional will help ensure that your policy stays up-to-date and your coverage is adequate to protect your loved ones. If you think it’s time to review your life insurance policy, North American agents can help.


1Source: 2021 Insurance Barometer Study, Life Happens and Life Insurance Marketing and Research Association (LIMRA). Methodology for 2020 Insurance Barometer Study: The Insurance Barometer is an annual study that tracks the perceptions, attitudes, and behaviors of adult consumers in the United States. In January 2020, LIMRA and Life Happens engaged an online panel to survey adult consumers who are financial decision-makers in their households. This survey generated over 2,000 responses. LIMRA conducts research on distribution systems for the financial services industry. Life Happens, is a nonprofit organization dedicated to helping consumers make smart insurance decisions to safeguard their families financial futures. Life Happens does not endorse any insurance product or agent.

2 Source: 2020 National Compensation Survey, U.S. Bureau of Labor Statistics

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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