Have Life Insurance Through Your Job? Beware This One Pitfall

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  • It's important to have life insurance so your loved ones are protected.
  • While some employers offer life insurance as a benefit, you may want added coverage for one big reason.

Be careful when relying on employer coverage.

The upside of being a salaried worker, as opposed to being self-employed, is getting to enjoy a host of employee benefits. Those could include a 401(k) plan with a generous match, subsidized health insurance, and life insurance your company pays for.

The latter is an important thing to have if there are people in your life who depend on you financially. But falling back on employer life insurance is a move you might regret. In fact, you may want to put your own policy into place for one key reason.

Will you lose your coverage once you leave your job?

Some employer life insurance policies are portable, which means you can take them with you if you leave or lose your job. But many employer life insurance policies aren't portable. This means that if you lose your job through no fault of your own, you could end up with no coverage for your family.

That's why it generally pays to secure life insurance on your own, even if your employer provides some free coverage. You don't want to wait until you separate from your employer to put your own policy into place, because in doing so, you could get stuck with very expensive premiums.

Let's say you start working for a company at age 30 and get life insurance through your job there. You may decide to not get a policy of your own. After all, why pay for something you can get for free? But what happens if, after 15 years with the same employer, you're downsized out of a job and your life insurance coverage goes away? Suddenly, you'll have to apply for a policy of your own now that you’re older. And at that point, you could be looking at more costly premiums that are hard to swing.

Is your employer coverage enough?

Portability, or a lack therefore, is the biggest problem you should be aware of in the context of employer life insurance. But another issue to consider is whether your employer's policy offers you the coverage you need.

As a general rule, it's a good idea to secure enough life insurance to replace 10 to 12 times your salary. If your employer offers you enough life insurance to cover four times your salary, and that's the only policy you have, your loved ones could still wind up being left in the lurch.

Don't skimp on coverage

Life insurance is one thing you really need to be careful with. Tempting as it may be to avoid buying a policy of your own when your employer gives you one, that coverage could be yanked out from under you, leaving you and your loved ones with nothing. Or, that coverage may be inadequate.

A better bet? Shop around for life insurance, and at the very least, secure some coverage that isn't tied to your job. You may decide to buy a policy with a smaller benefit to supplement your employer policy. That's far better than not having your own independent policy at all.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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