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Is group life insurance through work enough?

Group life insurance is a nice work perk, but it usually doesn’t provide enough coverage. Learn how your employer’s plan works and why it pays to get additional coverage.

You likely receive some kind of life insurance at work. It’s a common perk. Eighty-five percent of companies offer group life insurance benefits to employees, according to a 2018 report by the Society for Human Resource Management.

If your employee benefits include group life insurance, you might be wondering whether you should have life insurance outside of work. That’s a question we heard more than once during a Q&A with Lifehacker a while back.

One of the biggest misconceptions about life insurance is that if you have coverage through work, you’re set. That’s not usually the case, especially if you own a home or have children.

Group life insurance can be a nice addition to your benefits package, especially if it’s free or nearly free. But these policies can sometimes fall short if you have a growing family or your life insurance needs change throughout your career.

Take a look at the pros and cons of group term life insurance to decide if your employer’s coverage is all you need.

What is employer-provided life insurance?

Employer-provided life insurance is group life insurance that’s offered by your workplace. It’s called group life insurance because it’s offered to a large group of people, such as yourself and your coworkers, rather than an individual.

Your employer owns the policy and they may pay some or all of the premiums. Coverage is usually guaranteed and enrollment may be automatic or you may have to wait until open enrollment to sign up. There’s no medical exam and everyone who’s covered under the policy enjoys the same premium rate.

Group policies usually offer coverage amounts of one to two times your annual salary. Your employer may give you the option to buy more coverage. Just know that you’d have to make up the cost difference for any supplemental coverage and a medical exam might be required.

Where employer-provided life insurance falls short

The great thing about employer-provided life insurance is that it’s often a free benefit. And if you do have to pay something towards the policy, the premiums may only be a few dollars a month. Besides covering yourself, you may also be able to get coverage for your spouse or children.

There are downsides, however. First, supplemental coverage can get pricey and getting life insurance through your employer could end up being more expensive than a policy purchased directly from a life insurance company.

Next, the coverage limits offered may not be high enough to meet your needs. If your employer’s policy tops out at $250,000, but you’d feel more comfortable with $500,000 in coverage, that’s a life insurance gap you’d need to fill.

Finally, employer-provided life insurance is tied to your employment status. If you change jobs, your coverage could be terminated or you may have to pay a fee to take it with you.

It’s not just easier life insurance, it’s an easier life.

Learn about the perks that come with being a Haven Term policyholder.

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How much life insurance coverage do you need?

To decide whether employer-provided coverage is adequate, you first need to understand how much life insurance you need. The final number depends largely on whether you’re married or have children, and what you want life insurance to do for your loved ones.

If someone depends on you financially, such as a spouse and kids, or your parents co-signed on student loans or other debts, experts typically recommend having 5 to 10 times your annual income in life insurance. That’s a big difference from the one to two times your annual salary that’s standard with employer-provided life insurance.

Relying solely on the insurance offered by your employer could leave you and your family substantially underinsured. You may want to leave money behind to help with any number of final expenses – funeral costs, lingering debts, future college tuition, or simply the day to day costs of living. Those goals could be hindered by a too-small policy.

A good way to determine how much coverage you need is to use an online life insurance calculator. Compare that amount to the amount of coverage available through your work to see how closely the numbers line up.

How much does group life insurance cost?

Rates for group life insurance vary from employer to employer, so it’s difficult to nail down concrete numbers outside of your company’s plan. A better way to look at this question is in terms of how much value you’re getting with your coverage.

Generally, the younger and healthier you are when you buy an individual life insurance policy, the more affordable the premiums will be. With group life insurance coverage, your age and health could work against you because you may end up paying more to make up for the risk insurers assume by guaranteeing coverage to older, less healthy employees. On the other hand, if you’re older or have a preexisting health condition, a group term life policy through your employer could save you money since it’s guaranteed coverage that doesn’t require a medical exam.

Getting life insurance quotes from other insurers can help you decide if the coverage your employer is offering is the best value. For example, a healthy 35-year-old man could buy a 20-year, $500,000 medically underwritten Haven Term policy for about $23 per month. In many cases, an individual policy can be purchased for more competitive prices than employer-provided coverage and the policy stays with you, regardless of whether you change jobs. That’s a win on both counts.

Group life insurance lacks portability

When you buy a term life insurance policy, you expect it to be there when you need it. But if your employer-provided policy is job dependent, you can’t always take it with you.

You may be able to continue any supplemental insurance you’ve purchased through your company if you move on to a new employer, but that involves an added cost. If you’re able to convert your policy to make it portable, there’s often a rate increase. The insurer may assume that you can’t get coverage independently. Essentially, you’re paying a higher rate to make up for the additional risk the insurer takes on.

For that reason, employer-provided life insurance is less flexible than coverage purchased independently. If you’re considering an employer’s group life policy, read the fine print to ensure you understand how your policy is affected if you leave your job.

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When does group term life insurance make sense?

A life insurance policy from your employer may seem ideal, especially if it comes at no cost to you. With group life insurance, there’s no research or guesswork involved. Your employer presents you with policy options, you decide which one you want, fill out the paperwork and boom–you’re covered.

Qualifying for supplemental insurance coverage through your work may also be easier because of the cushion provided by group rates. And not having to complete a medical exam is a time-saver.

Price

Price-wise, basic group life insurance can be a bargain if it’s included in your benefits package. Supplemental life insurance can trigger additional premiums, but it may be an affordable option for older or less healthy people.

When deciding whether to accept basic group life insurance or apply for a supplemental policy through your employer, consider your insurability. Since group policy rates are negotiated on behalf of a wider pool of individuals, having a medical issue or certain health risk factors could help you unlock more cost-effective premiums than you could find on the open market. Again, be sure to do your research on how much individual life insurance policy might cost you to ensure you’re getting the most value possible.

Convenience

Group life insurance is hard to beat for convenience. Your employer has already done the research and comparison shopping, they’ve negotiated the premiums and in many cases, enrolling in coverage is free. You may have to fill out a few forms and select your beneficiaries but other than that, it’s a low-intensity way to get life insurance. And having some coverage in place is better than having none at all.

Extra coverage

If you already have a life insurance policy, having additional group coverage provided by your employer is a nice problem to have. If you pass away unexpectedly, your family will appreciate having multiple policies in place to help them handle their financial needs when they can no longer count on your income.

Why you should consider buying a personal life insurance policy

Group life insurance can certainly be a good deal but having just an employer’s policy alone isn’t in your best interest. It’s convenient, yes and it’s also inexpensive, but there are notable downsides to only having employer-provided coverage.

If you’re unsure whether your employer-provided life insurance is enough, the smartest step to take is determining whether it covers your needs. If you have a group plan or a supplemental plan that only provides a year or two of income replacement, buying more coverage is usually the way to go.

Think of life insurance coverage as a safety net for your family. You want to be sure your loved ones are financially protected if the unexpected happens. Employer-provided life insurance is a step in the right direction, but don’t limit yourself to your company’s coverage alone.

After all, life happens. You may switch jobs, get laid off, experience a disability or retire early. Life insurance outside of work can help position you to navigate different life stages and changes without putting your family’s financial security in jeopardy.

What Haven Life customers are saying:

Rebecca Lake is a freelance writer specializing in personal finance and small business. She lives on the North Carolina coast with her two children. Opinions are her own.

Real Rate is based on your application and third party data obtained during underwriting.

Haven Term is a Term Life Insurance Policy (DTC 042017 and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

Tom Anderson

About Tom Anderson

Tom Anderson is an award-winning financial journalist whose work has appeared in CNBC.comKiplinger’s Personal FinanceMoneyMonocle and Wired. He was a 2008-09 Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University.

Read more by Tom Anderson

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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