As you reach different stages in life, your life insurance needs change. Getting married and having children are just two examples of the kind of life-altering events that necessitate increasing your coverage.
One place people often turn to when they need more life insurance is their employer. You may already be covered under an employer-paid life insurance policy. Many companies offer a minimal amount of life insurance coverage as part of their general benefits package.
Don’t be lulled into believing that this is enough coverage. Typically these policies only provide coverage that is one or two times your base salary. According to The Life and Health Insurance Foundation for Education (LIFE), “most people need somewhere in the range of five to fifteen times their net income and sometimes even more."
If your employer offers a buy-up life insurance option, you could always obtain additional coverage to supplement the employer-paid policy. There are two definite advantages to this approach:
- There usually are minimal health qualifications to be approved for the group coverage.
- The premiums are automatically deducted from your wages, which decreases the chance of missing a payment.
However, there are some other factors to consider before you buy coverage through your employer:
- The type of insurance offered under the plan – Most employers provide term insurance, which pays a death benefit only if you die during the life or “term” of the policy. Unlike permanent insurance, the premiums you pay for term insurance don’t earn interest, and the policy doesn’t build cash value.
- The method used to calculate premiums – You need to determine whether your employer’s plan charges all employees the same premium, or whether premiums are calculated by age group, a practice commonly referred to as “age-grading."
- The status of your health – Employees with health problems who obtain coverage privately will likely pay more than they would if they purchased coverage under their group plan. However, healthy employees are likely better off finding insurance outside their group plan.
- The inability to take your life insurance with you when you change jobs – When you leave you employer, you leave your group coverage behind too. This is a serious consideration if you’re older because there is the possibility that your health could deteriorate in the future, which would make it more difficult and unaffordable to purchase coverage on your own. This lack of portability makes it a good idea to own some insurance outside your employer's plan.