Life insurance that is provided as part of a benefits package by your employer is a wonderful thing. Typically, they provide coverage equivalent to 1 year of your salary, and they give you the opportunity to buy more, up to around 5 times your annual salary, and at a cost that makes it seem too good to be true. It isn’t, and everyone should buy up to the maximum that you can through your company provided benefits.
That being said, there are a few things to keep in mind with your company provided life insurance so that you don’t end up without coverage, not enough coverage, or paying too much for the coverage you get.
The first and most common downside to employer provided life insurance is that it ends when employment ends. For some, that is okay because they are leaving one employer for another with similar benefits, and it’s a controlled situation with only a small gap of time where there is no coverage. Many people, though, find themselves out of a job suddenly which means that they suddenly don’t have coverage, and they aren’t inclined to purchase coverage because they are out of work and looking for a job.
The second issue that comes up, though, is a great problem to have in that the maximum amount of coverage you can buy through your employer at that ridiculously low price is not enough to meet your goals. This means you are on the right track and the good news here is that there are many options to fill the gap between what you have and what you need…..there are even options that will last beyond retirement for the rest of your life, and that will earn money in a cash accumulation account.
The last issue is one that isn’t talked about a lot but tends to happen to everyone who is taking advantage of the option to purchase life insurance from their employer for that crazy low price, and that has to do with how it is priced. When you first start working at 23 years of age, that coverage is dirt cheap because it’s a group plan, they rate it based on your risk but the only thing they know about you is your age and the age of everyone else in the group plan, i.e. your co-workers. The downside is that the cost slowly creeps up as you get older, so much so that usually between 45 and 50 years of age, the cost becomes more expensive than you would pay for a term policy from any insurance agent. This is something to be aware of so that when you reach that point, you can go get a 20 year term policy that will carry you through till retirement, lock in the rate you pay for that 20 years, save a bunch of money, and drop your company plan back down to whatever the company gives you for free.
Life insurance from your employer is a benefit that they subsidize and you should take full advantage of it. Just know that it isn’t designed to solve every problem and need, and that it isn’t crazy cheap forever. Whatever you do, just be sure that you have life insurance in place. Ask any insurance person and they can tell you about people they have known who passed suddenly and left mountains of bills for their spouse, or not enough to allow the family to stay in their home, or not enough to pay for their kids to stay in school, and even stories of benefits being held to raise money to put someone in the ground. They are terribly sad stories and ones that can be avoided with just a few dollars a month.
This post was written by Aaron Nicklay, Agent with Farmer’s Insurance. For more information on this topic and more and how Aaron can help protect your business, email him at email@example.com or call (952) 229-5155.