Is the life insurance you’re getting through your employer enough to take care of your loved ones?
Many companies pay for some amount of life insurance for their workers, as a result, many families obtain all of their life insurance through an employer. If you make $75,000 per year, your employer might provide $75,000 or $150,000 in coverage (amounts differ by plan) at little or no out-of-pocket cost to you, and the premiums will come straight out of your paycheck. This way, you’ll never miss the money or worry about paying the bill. And even if you’ve had less-than-perfect health, you’ll qualify for just as much coverage as your co-workers who may not be in good health, however there are several potential problems with obtaining life insurance only through your employer.
- Your employer may not offer enough Life Insurance
While basic employer-provided life insurance is low-cost or free, and you may be able to buy additional coverage at low rates, your policy’s face value still may not be high enough. If your premature death would be a financial burden to your spouse and/or children, you probably need 4 to 6 times your annual salary. While this amount is sufficient for some people, it isn’t enough for employees that have non-working spouses, a sizable mortgage, large families or special needs dependents, and some would recommend 10 times your annual earnings.
Death Benefits that replace salary do not take into account bonuses, commissions, second incomes and the value of additional benefits such as medical insurance and retirement contributions.
It’s very important to carefully determine your need.
- You’ll lose your coverage if your job situation changes
As with health insurance, you don’t want gaps in your life insurance coverage because you never know when you might need it. Most workers who get coverage through work don’t know where their life insurance will come from if they change jobs, are laid off, their employer goes out of business or they switch from full-time to part-time status. You usually won’t be able to keep your policy in these scenarios. Lack of portability can be a problem if you aren’t going directly to another job with similar coverage and aren’t healthy enough to qualify for an individual policy. All policies have a conversion option regardless of health, but it will likely become much more expensive, and if you’re losing your coverage because you were laid off, the premiums might be unaffordable.
- Coverage gets complicated if your health declines
Another problem arises if you’re leaving your job because of a health problem. If you rely solely or heavily upon group insurance, and then suffer a medical condition that forces you to leave your job, you may be losing your life insurance coverage just when your family is going to need it the most. At that point, it may be too late to purchase your own policy at an affordable rate, if at all, depending on the medical condition.
Even if your health problems aren’t significant enough to stop you from working, they might limit your employment options if you only have life insurance through work.
- Your plan doesn’t provide enough coverage for your spouse
While your employer’s benefits package probably provides health insurance for your spouse as a dependant, it won’t always provide life insurance for him or her. If it does, the coverage may be minimal—$10,000 is a common amount, and that doesn’t go far when you lose your husband or wife unexpectedly.
Couples often assume the family will only suffer economic hardship if the primary breadwinner dies. Ask yourself this, if your partner dies on Saturday are you going back to work the following week? Do you have enough paid time off on the books to cover an extended leave?
When one parent is absent, the other must take up the slack with daycare or chauffeuring. Hours are cut back. There is never time to properly grieve and, as survivors are often depressed, productivity often falls.
The Solution
While there’s no reason not to take advantage of any free or inexpensive insurance your employer offers, it definitely shouldn’t be your only source of life insurance. The solution to each of the problems described above is to purchase some or all of your life insurance directly through a Financial Advisor.
If you don’t qualify medically for life insurance, you can purchase an individual policy called “guaranteed issue,” which doesn’t require medical underwriting. These policies are typically much smaller and require much more premium dollars than what you’d get under an individual policy that you qualified for medically. As long as you can afford the premiums having this guarantee issue coverage is better than nothing. If your health improves, you might be able to qualify for a medically underwritten individual policy and drop the more expensive policy that doesn’t require medical underwriting.
“It is best to buy the most insurance you can afford at the youngest age, since, as you age, the chance of acquiring an illness goes up, and with illness comes more expensive premiums, if you can qualify at all.”
You need enough life insurance to cover all your debts and support your dependents. This includes paying off your credit cards, car loans and mortgage, paying for your children’s education, and making sure your spouse will have the financial means to take care of him or herself and your children. In a time of grief, the last thing you want is to leave your loved ones with another major life change such as having to change jobs or schools because of financial strain, so take a close look at whether the life insurance you’re getting through work is enough to provide for your loved ones.
The Majdoub Group is very experienced in this area and welcome questions, enquiries and comments.
About the writer
Meiz Majdoub, B.Comm, is a financial professional with over 30 years of experience and is accredited with a CLU, CH.F.C. He is also a member of the Conference for Advance Underwriters (CALU). and the Estate Planning Council Of Ottawa. He has helped individuals, organizations and corporations attain their goals in the areas of Financial & Estate Planning, Insurance, Living Benefits and Employee/ Group Benefits. He can be reached at: 613-749-4007, or [email protected]