A survey by LIMRA reveals that 35% of men and 22% of women in America believe that their employer-sponsored life insurance is sufficient. It’s worth noting that more than 50% of American households rely on at least two incomes. The most recent Insurance Barometer study shows that a quarter of these households would start struggling financially in a month and 42% within six months if they lost one source of income. Your employer may provide you with a life insurance plan as part of your benefits package. While a group plan is a nice perk, you should consider if it sufficiently meets your needs. In general, relying entirely on the employer-provided life insurance plan comes with other problems, including:
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Inadequate Coverage
The biggest issue with employer-provided insurance plans is inadequate coverage. Most group term life insurance plans provide, at most, three times your annual salary. For example, if your annual salary is $50,000, your coverage could be up to $150,000. While this coverage may seem like a lot, it may fall short once you think of all the costs your dependants will have to be covered for (childcare, living expenses, college tuition, mortgage payments). If your employer-sponsored life insurance coverage can’t sufficiently provide for your dependents if you pass on, you should consider purchasing a life insurance policy that supplements the employer-provided coverage.
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Not Portable
Just like with health insurance coverage, you should avoid gaps in life insurance coverage because you might need it at any time. If you’re laid off, change jobs, or become a part-time employee, you may lose employer-sponsored coverage. This lack of portability can leave your family unprotected if you aren’t taking up another job that provides similar coverage. While some insurers may allow you to change your employer-provided coverage to an individual life insurance policy, it will likely cost more. Additionally, if you lose your coverage due to being laid off, you may not be able to afford the premiums.
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Doesn’t Provide Sufficient Coverage for Your Spouse
Unlike employer-provided health insurance, which typically covers the spouse, employer-sponsored life insurance policies don’t always sufficiently cover employees’ spouses. If they do, the coverage is typically minimal. The standard minimum amount is $100,000, which may not be sufficient if you lose your partner unexpectedly.
Families can still suffer financial hardship even if the spouse who passes on earns less or is not working. For example, with one absent parent, the other parent may have to take up an extended leave which means they may have to cut down on working hours. So if your employer-provided coverage doesn’t provide adequate coverage for your spouse, you should consider buying a separate life insurance policy for them.
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It May Not Be Your Cheapest Option
Even if your employer provides sufficient life insurance coverage for you and your spouse, you should still evaluate all the available options to see if the employer’s insurance is your most cost-effective option. The healthier and younger you are, the higher your chances of getting better life insurance rates elsewhere.
The Solution
While it’s prudent to take advantage of an employer-sponsored life insurance policy if it’s inexpensive or free, ideally, it shouldn’t be your only life insurance policy. The solution to the issue described above is to buy an additional life insurance policy besides employer-sponsored life insurance coverage.
How Much Supplemental Life Insurance Do You Need?
To come up with a personalized and precise estimate, you should consider how much of your annual income goes to your dependents and how long they will need the income. At Donald Weiss Insurance Services, our life insurance experts can help you find a cost-effective life insurance policy that adequately protects your family. To get started, contact us today.
