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Buying life insurance at work

An easy way to protect your family

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.

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. 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, which provides coverage for a specific period of time – in this case, it’s 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.

Is one year’s salary enough for life insurance?

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.

Some industry experts say1 most people need seven to ten times their annual salary in life insurance protection. 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.

If your employer is getting a good discount on its group plan, purchasing extra coverage may be a good deal for you and be more affordable than individual life insurance.

Purchasing life insurance coverage on your own

Just because your employer offers life insurance doesn’t mean you can’t also purchase coverage on your own. There are a number of reasons this may be wise:

  • The maximum amount of coverage you can get through your employer’s plan may be less than the amount you need.
  • Life insurance offered through your employer is typically term life insurance, not permanent – so you may have a gap in coverage if you leave your employer or retire.
  • Term life insurance does not build cash value like permanent life insurance products
  • If your employer offers permanent life insurance that builds cash value, you would be able to take it with you if you leave your company – however, the premium you pay may increase.
  • Premiums for supplemental insurance through your employer may increase as you age, so purchasing on your own may enable you to lock in a lower rate while you’re young and healthy.

There are many ways to purchase additional life insurance coverage. Talk to a financial advisor or your bank or credit union to learn more about your options.

 

1. Jay MacDonald, "How much life insurance should you buy," Bankrate, October 15, 2014.

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods.

Estimate your needs

You may be surprised to learn how much life insurance you need.

Use our calculator