Is Employer-Provided Life Insurance Enough?

The Team
The Team

Employer-provided life insurance is a benefit provided by your workplace that offers your beneficiaries financial security in the event of your death. This type of life insurance is considered group life insurance, meaning that a single contract protects a group of people, like your coworkers. Group life insurance through your employer is one of the most inexpensive ways for you to retain insurance coverage for you and your family, especially since premiums are generally covered all or in part by your employer. However, group plans may not be customizable, and they are dependent on your employment. While basic group life insurance is generally available to employees at no cost, many employers also offer supplemental group life insurance that you can purchase within a restricted coverage range. Due to the limited nature of employer-provided life insurance, employees with more financial responsibility may want to consider other types of life insurance

Employer-provided Life Insurance vs. Term Life Insurance 

Term life insurance plans offer coverage for a predetermined length of time, usually ranging from 10 to 30 years. This type of coverage insures that if a policyholder were to die within the coverage term, their benefits would be paid to their beneficiaries. Term life insurance is generally not provided by your employer, and it does have an expiration date, after which you must decide whether or not to renew your plan. Even as an employed person, you may want to get term life insurance to retain coverage if you lose your job or are employed by another company. You may also want term life insurance for periods of your life during which you have greater financial responsibility, like when you have young children or higher balance debts. 

Employer-provided Life Insurance vs. Whole Life Insurance 

Unlike employer-provided life insurance or term life insurance, whole life insurance is designed to insure you for your entire life. Whole life insurance is not dependent on any predetermined length of time or on a specific employer, but you will have to pay out pretty substantially to take advantage of that type of security. The monthly premiums for this type of insurance can cost as much as several hundred dollars per month for the rest of your life. However, the cash value of your policy will grow as you pay your premiums, and depending on your policy, you may be able to take some of that money with you if you decide to leave the insurer. 

Advantages of Employer-Provided Life Insurance

Employer-provided life insurance is often included with a benefits package, so there is no reason not to accept the offer, especially if it is free or very low cost. Having insurance through your employer has several benefits worth mentioning:

  • Convenience: Employer-provided life insurance is often automatically included in a benefits package and requires little to no research or hunting on your part. 
  • Cost: Many employers cover the whole or better part of the premiums associated with group life insurance, making it very easy to afford on any budget.
  • Price for pre-existing conditions: Employer-provided life insurance generally does not require any medical testing or examinations and does not inflate coverage costs based on pre-existing conditions, though it may ask for a disclosure of such conditions.
  • Opportunities for add-ons: While most employers cover basic life insurance (pay-out often equal to your salary) they also tend to offer opportunities for additional, supplemental group life insurance, which you can add to your plan for a reduced cost. 

Disadvantages of Employer-Provided Life Insurance

When you only have group life insurance through your employer, you are subject to some restrictions. Depending on your financial responsibility and the size of your family, you may want to consider the following limitations:

  • Not enough coverage: Coverage is generally 1 to 2 times your annual salary, which may not be enough to support your family in the long term. 
  • Limited coverage for spouses: If your spouse gets their benefits solely through you, their coverage is generally half of yours, which would not be much help to you in the event of their death. 
  • Loss of coverage if you lose your job: Group life insurance through work does not follow you when you leave your position.
  • Limited options: Group life insurance plans are determined by the policyholder, your employer, and offer little to no customization options. 
  • Difficult customer service communication:  When you personally are not the policyholder, you may find it difficult to correspond with the insurance carrier.

Guide to deciding if employer-provided life insurance is enough for you

Your lifestyle determines your insurance needs. We spoke to life insurance expert Chris Abrams of Abrams Insurance Solutions in San Diego and asked him whether an employed person should seek additional life insurance outside of their employer-provided insurance.

Abrams said, “Yes. Employer-provided insurance is often only 1-2 times your income, which is generally not enough to support all of your financial responsibilities like a spouse and children, mortgage and debts.” He went on to say that employer-provided insurance isn’t portable — meaning that if you lose your job, you lose your insurance. 

If you are unsure whether or not employer-provided life insurance is enough for you, use the step-by-step guide below.

STEP 1Examine your long-term financial responsibility, including things like the life of your mortgage, balance of student loans, credit card debt, number of car payments remaining, etc.
STEP 2Determine what your employer-provided insurance will pay-out in the event of your death. Ask yourself if this amount will sufficiently cover the costs mentioned above. 
STEP 3Evaluate the security and likely longevity of your current employment. How long will you retain your insurance coverage if you lose your job or choose to retire?
STEP 4If your employment is secure and your employer-provided life insurance pay-out will settle your needs, stick with it. If there are gaps or issues with coverage, seek further insurance coverage. 

If you think you may want more coverage, but aren’t sure how much, try using Abrams’ Life Insurance Needs Calculator as a tool to determine your recommended insurance coverage. Also, consider the questions below:

  • How many people are currently depending on your income and will continue to need financial support after your death?
  • Do you have pre-existing conditions that may preclude you from certain types of additional insurance?
  • Can you afford the additional premiums for term or whole life insurance?
  • What type of coverage do you need?

The Bottom Line

Employer-provided life insurance is convenient and inexpensive, but depending on your lifestyle, it may not offer enough coverage. Single people without dependents, mortgages, or debt will likely have their coverage needs met by employer-provided group life insurance. However, if you do have dependents and financial responsibilities, you should consider supplementing with a term life insurance plan. If you decide to supplement your life insurance you have plenty of options. Take a look at some of our other insurance information depending on whether your consumer needs are general, looking for life insurance for a senior citizen or budget conscious.