As an independent insurance agent, I cannot remember how many times I’ve been told: “I’m good, I’ve got life insurance at work.” When I say I can’t remember, I mean I’ve heard this response so many times I’ve lost count. Please don’t misunderstand, it’s not a bad thing, in fact, I always congratulate prospective clients for taking advantage of group life insurance, especially if your employer will pay for it.
The problem is, most people are misinformed or simply don’t understand what group life insurance will and will not do for them. Yes, it will pay your beneficiary if you die while your policy is in force but there are some drawbacks in thinking free life insurance at work will take care of your surviving loved ones if you were to die unexpectedly. As a matter of fact, this problem is actually growing even though experienced agents continually attempt to help people understand that group life insurance contains some pitfalls.
Employer-Sponsored Coverage is Growing – Sort Of
In August of last year, LIMRA, an international life insurance, and market research association published their findings that more individuals were covered by employer-sponsored life insurance than by individual life insurance plans. Certainly, this would be a good thing if the majority of the employees also had their own individual life insurance policies but sadly they don’t.
Even though the number of employer-based insurance policies surpassed individual insurance policies by six million policies, the percentage of American households covered by employer-based life insurance was actually down when compared to the percentage in 2004.
What’s the Matter with Life Insurance through My Employer?
If you have life insurance through your employer, congratulations; but how much do you have? A typical employer-based life insurance policy is one to three times your annual salary. So then, if you are earning $60k a year at work, you probably have $180,000 in insurance coverage which in most cases, is not enough for a typical family of four. Let’s do some math!
First and foremost, if your family’s living expenses amount to $50,000 a year and it costs about $15,000 to bury you, what happens in year four? Typically what happens is your spouse has to scramble to make up the difference. Nothing else will matter. College tuition most likely won’t get covered, the mortgage is still due each month, and you can forget about investing for retirement.
Group Health Benefits
If your employer was paying the bulk of your health insurance, unfortunately, that goes when you go. Now we have to add the cost of health insurance to the surviving spouse’s expenses.
There’s No Place Like Home
In most family situations, the spouse helps make the mortgage payment. If your only insurance is through work, it’s unlikely that you’ll be able to leave a paid-for home to your family.
Coverage is Up to Your Employer
Most employees assume that once their employer provides them with life insurance, that BENEFIT can never go away. Sorry, but insurance is a benefit and is never guaranteed. If your employer decides they can no longer afford it and decides to discontinue paying the premium, you are now uninsured. Unfortunately, Uncle Sam will not step in and save the day, when it’s gone, it’s gone.
It’s Not Portable
In most cases, your employer-based life insurance doesn’t follow you if you leave your employer. If you are laid-off or fired or if you decide to leave and start your own business, your policy will typically not follow you. Sure you can always buy another one but what if you’ve developed a health issue like diabetes or high blood pressure? Now, your free insurance just turned into expensive insurance.
Okay, I get it, How much Insurance do I Need?
How much life insurance you need is one of the most important questions you can ask. But your employer-based insurance coverage is limited so it’s unlikely that you’ll have a choice when you are provided coverage.
Your insurance needs are based on various financial needs that your surviving loved ones will be facing when your income is no longer available. An experienced and reputable insurance broker will help you calculate your life insurance needs so you can arrive at the appropriate amount of coverage. When you have that amount calculated, you will understand how employer-based life insurance falls short when it comes to coverage.
You can even do this on your own so you’ll know your insurance needs before you contact an insurance broker. There are life insurance calculators online that will take you through a series of questions in order to calculate your life insurance needs and there is no obligation to buy anything.
How Can I Find the Lowest Rates?
This is actually the easy part. Technology today allows most insurance brokers to provide insurance costs online. Most have a Quote Engine on their website that will allow you to get quotes from many of the highly-rated insurance companies in the marketplace.
Once you know how much life insurance you need and the approximate monthly premium, it’s time to contact an independent insurance agent like LifeInsure.Com and finish the process by completing the application. The great thing about using an independent broker is that they are paid by the insurance companies so there is no cost for you to have them advocate for you. They will do the work to get your policy issued.