Why Life Insurance Through Your Employer Is NOT Enough

It’s great to have life insurance through your employer, but it is NOT enough!

This post is for all of the folks out there that have a life insurance policy through their employer but have not bothered to get an additional policy through an insurance agency. If this is you, then there are several things you need to take into consideration before saying, “I don’t need a life insurance policy because I have one through my work.”

What to take into consideration

Not enough coverage

The bottom line as to why an employer-provided life insurance policy is not enough simply comes down to the amount of coverage the policy provides. Typical life insurance policies through your employer are in the amount of 1 times your base salary. So, if you make $100,000 a year, then the amount of your coverage is $100,000. I know that $100,000 may sound like a lot of money to some, but it’s not. Especially when you begin to factor in a mortgage, cost of college, paying off debts, final expenses, and replacement income.

On the other hand, if you are single and without kids, or have a spouse who doesn’t rely at all on a portion of your income, and you have no debts, then maybe an employer-provided life insurance policy is plenty for you.  

At the bottom of this post, I will provide a link to download a life insurance coverage amount estimator to aid you in determining the amount of coverage that is right for you.


If you lose your job, then you’ll probably lose your coverage

Job security is a fantastic thing! Mark my words though, the future of your job or the business itself is never guaranteed. There is always something that can go wrong. For the sake of the argument we will say something did go wrong, and now you have found yourself without a job, and without life insurance.

Now, some employer-provided policies are portable. This means that when you leave your current place of work you are then able to take your life policy with you and continue paying on your own. This can be costly to you, and the guidelines of how this works can vary depending on what type of policy you have or if your previous employer have allowed the policy to be portable. Also, if you are changing jobs then your new job may not offer a life insurance policy. Life is very uncertain, and the last thing you want is to have gaps in your life insurance coverage.

Coverage may be more expensive through your employer

Many do not believe that this would be the case, but for the large majority of employer provided life insurance policies it is! The reason why this is the case mainly has to do with the lack of underwriting for group based policies. Typically, the rate will be a standard rate that is formed based on the number of employees. What this means is that if you are young and healthy, then the rate is not based on you alone, but the group as a whole. A typical life policy would be underwritten based on your individual health and age with no outside factors, like the health and age of other interfering. Now if you are older, or still young, but unhealthy, then employer provided life insurance would be good for you because there is no underwriting and the rate would more than likely be a lot lower than what you would find elsewhere.

Decline of health

Two of the determining factors that make up the cost of your life insurance policy is your health and age. The underwriting process before your policy is issued can be extensive. If you are currently healthy and fairly young, plus you have a life policy through your employer, then I would strongly urge you to also obtain a life policy outside of your work. As you age, it is natural for the body’s health to decline. If you became ill while you were still employed, but the sickness made you have to leave your job, then chances are you would also be leaving your life insurance coverage. If that scenario were to occur, then it would be too late to obtain coverage from an outside source at an affordable rate because of your decline in health. If that same scenario occurred, but instead you managed to stay at work, then it is possible for your life insurance coverage to be moved to a carrier with lower rates, but the less financial stability than your original carrier. That could then leave you covered by a company that may not be able to pay out in the event something were to happen.

So, with those points in mind, you need to obtain life insurance coverage from a source other than your work. Employer provided life insurance policies are a fantastic benefit, but the 4 topics above should provide you with enough evidence as to why you are not covered to the extent you think you are.

Thanks for reading,

-Harrison Horton