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Is employer-provided life insurance enough?

Jun 18, 2021 5 Minute Read

Part of the appeal of a steady job is the perks, like paid vacation, health insurance, and virtual happy hours with the team. In fact, about 57% of people report employee benefits and perks being among the top things they consider before accepting a job, and 80% want benefits more than they want a pay raise.

As an employee, one of the perks you might receive is group life insurance. About 60% of employees have access to life insurance through work, although the number of employers offering coverage has declined in recent years. While it might seem like an easy way to keep your family covered, relying only on group coverage can leave your family unprotected when they need it most. Here’s what to know about employer-provided life insurance so you can make sure you’re adequately covered.

What is group life insurance?

Group life insurance refers to any policy where you can apply and receive coverage as part of a group. Most people receive group life insurance through an employer, but it can also include coverage through an association, a union, or another organization.

Employer-provided life insurance is typically offered as part of your employee benefits package and is intended to provide your beneficiaries with some money in the event of your death. This type of coverage usually comes in one of two forms:

  • Basic group life insurance is a small life insurance policy that your employer may offer to you automatically as an employee benefit. Coverage often comes in predetermined amounts, ranging from $25,000 to a multiplier of your annual salary.
  • Supplemental group life insurance plans allow you to buy life insurance coverage up to three or four times your annual salary. It’s typically easy to get approved for coverage, although you may need to answer some health questions during the application process.

Group life insurance is an easy way to access life insurance, since your company has already done the research and chosen policy options for you. A basic group life insurance policy is usually free or highly subsidized, so there are financial advantages to going this route, too. But group life also has some drawbacks, and knowing them ahead of time can help you make the right decisions for your family.

Why employer-provided life insurance may not be enough

Group life insurance can fall short if it’s your only source of coverage. Some common concerns that come up include:

Issue 1: The payout often isn’t big enough.

Most group life insurance policies top out at three to four times your salary, which helps explain why people who only have group life insurance typically have $225,000 less in coverage than they need. Most people need seven to 10 times their income in life insurance, especially those who are the primary wage earners for their families. Life insurance needs to help your family cover all of the things your salary pays for now, including your mortgage or rent, monthly bills, student loans, and credit card debt. An insurance calculator can help you find your ideal coverage amount.

Issue 2: You can’t take it with you.

Most companies won’t allow you to take your coverage with you if you change jobs. About 21% of millennials have changed jobs within the past year alone, and few people stay in the same role for decades these days. If you need to leave a job because of a medical issue, you have an even bigger challenge. You might not be able to qualify for individual life insurance coverage or the cost can become prohibitive, leaving your family stranded when they need it most. It’s also possible that your employer could stop offering life insurance coverage as a perk, leaving you uncovered.

Issue 3: One-size-fits-all doesn’t work for everyone.

Your company’s life insurance plan has to cover people of all different ages and backgrounds, so employers try to find a happy medium. That makes getting covered through work easy, but it also means that your life insurance is not designed around your unique needs. For example, group life insurance usually comes in set amounts, so you can’t tailor the life insurance to the exact amount of coverage you need. You also typically can’t add riders to customize your coverage. It’s also designed to cover people at a wide range of health levels, so if you’re paying for coverage, you might be able to get a better rate with an individual plan.

The benefits of getting an individual life insurance policy

Wondering about group insurance vs. individual insurance? There are plenty of benefits to getting an individual life insurance policy to supplement a group life policy. Term life insurance is the way to go for most people, since it’s affordable and easy to understand. You choose the amount of term life coverage and policy length, and you receive guaranteed coverage for the entire term – no matter what happens in your career. An insurance company that works with multiple providers, like eFinancial, can help you browse plans to find the best option for you, your family, and your situation.

Still have questions or want more information about life insurance through an employer?

We’re here to help. eFinancial works with top-rated life insurance companies to help you find the right coverage for you and your family. Call us or start your quote online today.