While many people think of health insurance as the main benefit they get through their employer, chances are you have many additional options available to you — including life insurance. Employer-provided life insurance, also called group life insurance, is a policy where one contract covers all eligible employees at a company.
Key takeaways:
- Employer-provided life insurance is often free and typically equals one year's salary
- Group rates and guaranteed coverage make workplace life insurance affordable and accessible
- Coverage usually ends when you leave your job, so consider supplemental individual policies
- You can have both employer-provided and individual life insurance to meet your family's needs
- Use a needs calculator to determine if your workplace coverage is sufficient
When you're starting a new job or going through your employer's annual enrollment for benefits, it's easy to get overwhelmed with so much information thrown your way.
You may never have stopped to consider whether the choices offered by your employer are the best fit for you and your family.
Life insurance is an important part of how you protect your family's finances if the unthinkable happens, but can be an overlooked option when enrolling for benefits at work.
Advantages of buying life insurance at work
Life insurance offered through your employer is typically "group insurance," meaning one policy covers a defined group of people (in this case, you and other people who work for the same organization).
Many employers automatically provide a basic level of life insurance — usually equivalent to about one year of your salary, though some offer up to two times your annual earnings. In fact, you may not even know you have it, since many employers pay for this coverage on your behalf and do not deduct it from your paycheck.
Employers also typically provide the opportunity for you to enroll for additional coverage that you pay for through payroll deduction.
Here are some advantages of buying life insurance at work:
- Guaranteed coverage: Many employers allow you to enroll for coverage when you're first hired without answering any questions about your health — meaning you won't be declined for coverage. Some employers also offer guaranteed coverage increases when you experience a big life change, like getting married or having a baby.
- Group rates: The rates you pay for coverage are based on the overall health of a group, rather than just you individually. That can make group insurance more affordable than going out and buying life insurance on your own, depending on your age and your health.
- Easy enrollment: You're already enrolling for other benefits — so checking the box for life insurance is easy. And because most employers offer payroll deduction, you don't have to remember to pay the bill.
Considerations for buying life insurance through your employer
Employer-provided life insurance can have a few limitations to consider, as well.
It's usually temporary
Most life insurance coverage through your employer is term life insurance — a type of coverage that provides protection for a specific period of time and pays a death benefit if you pass away during that term. In this case, your term is your period of employment.
If you decide to retire or leave your current employer, your coverage will end, although many employers' plans offer options to continue your coverage.
Limited customization
You usually aren't able to customize the policy features your employer selected.
Limited coverage amounts
Based on your family's financial goals and obligations, you may find that you need more life insurance than you can get through your employer.
Review your options to determine if it offers the level of coverage you need to protect your family and provide them with the financial support they would need if they lost you.
When one year's salary isn't enough coverage
One year's salary is often not enough life insurance for people with significant financial obligations. In many cases, an employer policy bases your life insurance coverage on a multiple of your salary. Generally, the coverage you're automatically enrolled for is just one year's salary.
If you are young, single and don't have much debt, one year's salary may be enough to help your family cover your debts and funeral costs.
But if you're older — with a mortgage, a higher salary and family members dependent on your income — one year's salary may not be enough.
Use our insurance needs calculator to do the math and determine what amount of coverage is right for you.
To make up the difference, you can typically purchase more coverage through your employer's plan or you can purchase an individual life insurance policy on your own.
Should you buy additional life insurance through your employer?
Most employers' plans offer the option to elect additional coverage beyond what they automatically provide.
You pay the premium for this supplemental coverage, usually through payroll deduction. Typically, your premiums will increase as you get older.
Insurance coverage through your employer is offered at affordable group rates, so purchasing extra coverage may be a good deal for you and be more affordable than individual life insurance.
