Life insurance is one of the most common benefits companies provide to their employees nowadays. If you already have one of these policies, then you may be wondering if it’s really necessary to get your own private life insurance policy. In this post, we’ll explain some pros and cons of employer-sponsored life insurance and why getting separate coverage is still a good idea.
How does employer life insurance work?
Employer life insurance (also called group insurance) works slightly different than private life insurance. In many ways, there are a lot of great benefits to being on one of these types of policies.
- You don’t have to pay for them. Companies typically offer group life insurance as a paid benefit to the employee at no additional cost.
- Automatic acceptance. Group life insurance plans do not require medical exams or health screenings. So, you’ll still receive coverage even if you have a pre-existing condition.
- The ability to supplement. Group life insurance typically gives employees the ability to increase their coverage. This can be a convenient way to extend the potential death benefit.
However, workplace life insurance policies do have a few drawbacks.
- Eligibility ends when you separate. If, for any reason, you leave your job (either by your choice or theirs), you will no longer be covered, and your family will no longer be eligible to receive a death benefit.
- Limited coverage. Most workplace life insurance policies are generally capped at $50,000 (the maximum amount the IRS excludes). Although some employers may offer a higher death benefit, the excess in premium will appear as a taxable fringe benefit on your paycheck stub.
Why you should get your own life insurance policy
While being on a group insurance plan is a good start, you’ll still want to consider getting your own permanent or term life insurance policy. Not only will a private policy provide you with an adequate amount of coverage that will stay with you no matter who you work for, but it will also provide the following advantages.
Higher coverage amount
Most financial experts agree that your life insurance death benefit should be at least 10 or 12 times your annual salary. That means someone earning $80,000 a year should apply for a policy with a face value between $800,000 and $1 million. Most employer policies won’t be to offer this level of protection, and even if they can, you’ll likely get a better rate with a private provider.
Lock into the best rates
There’s no better age to lock into a life insurance policy than right now. The longer someone waits or puts off applying for life insurance, the greater the risk of developing a medical condition that could cause their premiums to increase or deny them coverage altogether.
Though you may have coverage from an employer, this is still something you should strongly think about. Use your current state of health to qualify for great premiums that won’t change for decades.
Better product selection
While most people get life insurance for the death benefit, many wealthy people use life insurance for something called cash value. Cash value is like a savings account within the life insurance policy that can grow and accumulate value over time. Many policyholders eventually borrow against this cash value to buy income-producing assets or start a business.
You won’t get this cash value if you only have an employer policy. Instead, you’ll need your own permanent life insurance policy that you can fund and leverage to create potential financial opportunities.
The bottom line
While having an employer life insurance policy is helpful, it falls short of your full scope of needs. Not only will the death benefit not be sufficient, but you’ll also risk losing coverage if you ever separate from your employer.
On top of that, buying your own life insurance policy allows you to pick one with cash value. This can provide you with a death benefit and an investment vehicle for years to come. For these reasons, you should consider getting your life insurance policy outside your employer.
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