Don’t Bank on Your Employer-Paid Life Insurance

February 20, 2014
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Financial writer Amy Fontinelle has an excellent article today in Investopedia. She asks, “Is Your Employer-Provided Life Insurance Enough?” Her answer is basically, no – it is not. I think her conclusion is “on the money.” Here are some problems she identifies, along with my explanation as to why they are particularly pressing in today’s economy and life insurance marketplace. Be sure to read her article for the details of her research.

Problem: Your employer may not offer enough life insurance.

Is one or two years salary enough to provide for your survivors? For most people, it is not. Do you know what is the optimum formula to use to replace your income? Identify a capital sum that can be invested so the interest would be sufficient for your family to pay its bills. Your family will then never run out of money. An employer will never provide that amount, except in a highly selective executive bonus arrangement.

Problem:  You’ll lose your coverage if your job situation changes.

Have you seen the unemployment figures lately? How about all the people whose hours are being reduced to part-time, due to Obamacare? Transiency is the hallmark of today’s employment workplace. The lack of portability of group coverage is therefore a liability.

Problem: Employer-provided life insurance may not be your cheapest option.

Group rates increase as the participants enter new five-year age brackets. This means that the rate you pay at age 35 will not be the rate you pay at age 40, and will certainly not be the rate at age 45. Underwriting leniencies are available on individual policies, even for people with a history of serious illness. In the long term, the total cost for coverage could be much lower.

Are you concerned about your own coverage?