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Is your employer-provided life insurance enough coverage for you?

By Jim Sloan on February 16th, 2011

The most common type of life insurance offered by employers is annually renewable term life insurance. It covers the employee for a set period of time--usually while they remain employed--and pays off only if the worker dies within the coverage period.

Employer-provided group term life insurance is about the best deal you can get in insurance; it's the least expensive coverage you are likely to find, you can frequently increase coverage at your own expense to meet your particular needs and payments can be automatically deducted from your paycheck.

What are the advantages of employer-provided life insurance?

Here are a few reasons why you should opt for employer-provided life insurance benefits:

  1. You probably won't have to pass a health exam to qualify, and sometimes you won't even have to answer a health questionnaire.
  2. Rates for those in the group plan can't be increased on an individual basis.
  3. Some plans allow you to transfer your group life insurance policy to an individual plan if you're terminated.

What are the employer-provided life insurance disadvantages?

Although there are advantages to employer-provided life insurance, these policies are often limited in a few ways. Before relying on an employer-provided policy to cover your entire life insurance need, consider the following reasons why group plans may not provide adequate coverage:

  1. The amount of coverage you can elect is often restricted. Some life insurance calculation formulas recommend life insurance in the amount of five to eight times your annual salary, but most group life programs offer only one or two times your annual salary.
  2. Your employer can terminate the plan at any time. It's a benefit, not a requirement, and when times get tough, employers could cut costs by eliminating group life insurance coverage.
  3. Coverage for your spouse or dependents is often minimal and generally can't be increased at an additional expense.
  4. Your coverage usually will be terminated when you retire, even though your insurance needs might continue. At that point, however, private insurance may be more than you can afford, so you'll wish you'd gotten some private coverage earlier in your life.
  5. The same is true if you lose your job; the economical coverage you had as an employee evaporates when you have to buy the same coverage independently.

What should you do?

Term life insurance is designed to cover expenses that will go away over time, such as college tuition or mortgage payments, does your employer-provided policy provide adequate life insurance coverage for these expenses if you should die? Will your family be able to maintain the same lifestyle?

After reviewing both the advantages and disadvantages of employer-provided life insurance, you may find you need an individual life insurance policy above and beyond what your employer provides.

Jim Sloan

Jim Sloan is a freelance writer in Reno, Nev.


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