Why Employer-Provided Life Insurance May Not Be Enough

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  • Life insurance is an important purchase necessary to protect family members or other dependents.
  • Many people are offered life insurance through their jobs.
  • Employer-provided life insurance often doesn't provide enough protection.

Don't assume that life insurance provided through work is sufficient protection for loved ones.

It's common for employers to offer life insurance as a workplace benefit. But while taking advantage of this coverage makes sense if employers cover or subsidize premiums, life insurance through work typically provides insufficient protection.

Those who get this insurance through their jobs may wish to purchase a separate policy independently for a few key reasons. Here's why.

The coverage may not be sufficient

One of the biggest reasons why employer-provided insurance may not be sufficient is that the amount of coverage available may be too low.

Many policies available through work cap the amount of the death benefit that is available to loved ones. But this limit may not be high enough to ensure that family members are fully provided for after an untimely death.

Typically, it's a good idea to have sufficient coverage to equal around 10 to 12 times the policyholder's income, and if an employer-provided policy can't offer that much coverage, additional supplementary protection should be purchased from an outside life insurance agency.

Coverage may end when a job does

Another big problem with employer-provided life insurance is that the benefit is often tied to the job. This means if someone must leave their position, they could end up losing their life insurance coverage.

This could be a huge problem if the person is leaving their job late in life, or is departing their position due to health issues. Buying insurance is easiest and most affordable when a policy is purchased while still young and healthy. If someone has developed a pre-existing condition or is leaving their job at a more advanced age, it may be impossible to get protection in place upon departing their position.

If it's not possible to buy life insurance later on, family members could be left without the protection they need. To avoid this, it may be best to buy a term life policy that's not tied to employment that will offer coverage for as long as it’s needed. If purchased early on in life with no serious medical conditions, the term life policy should be an affordable one, and it's usually worth paying for this added protection even if an employer offers life insurance.

Coverage purchased through a group plan may not be the cheapest option

In some cases, it is possible to buy a substantial amount of life insurance coverage through an employer plan. Although, an employer may subsidize or cover premiums only for a more limited death benefit, and workers who desire additional coverage may have to pay out-of-pocket for it.

In these situations, it still may not be the smartest financial move to buy the added coverage through the group life insurance plan offered by the employer. It may be cheaper to instead buy a separate term policy elsewhere from a different insurer.

Having insufficient life insurance coverage -- or not being able to maintain coverage at all -- could be a financial disaster. For each of the key reasons mentioned above, avoiding this dire situation may necessitate buying separate life insurance even if an employer offers a policy at work.

Anyone covered by their company should carefully consider their options and should consider getting their own term life insurance ASAP to provide the protection their loved ones deserve.

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