Should I Buy My Life Insurance Through Work?
Many employers offer basic life insurance to their employees as part of their benefits package. This type of life insurance policy is usually for a pre-determined, set amount—such as $10,000 or a year's salary—and is offered at a very low cost or even free. Many companies also offer the option to purchase a supplemental life insurance policy as a way to expand your coverage, if needed.
Before deciding whether or not to get a life insurance policy through your work it's wise to consider the drawbacks and benefits, and type of coverage that would meet your needs.
Related: Best Whole Life Insurance Policies
The Pros and Cons of Buying Life Insurance Through Your Job
A major benefit of getting life insurance through your employer is convenience. For example, you may know you need to get life insurance but simply haven't gotten around to it yet. Work-sponsored plans are a great solution to this.
And if cost is a major concern, then you may want to go with your employer's standard plan, which is usually free of cost or very cheap.
But while getting a life insurance policy through your employer may seem like the most convenient option, it's not without its drawbacks. If you were to lose your job, you would lose your life insurance coverage. You could also have a gap in coverage if you were to quit your job and find a new job.
Another thing to consider is whether your company's standard life insurance policy is large enough to cover your needs—especially if you have a spouse and other dependants. If not, you may have to purchase a supplemental policy. And if you purchase supplemental life insurance through your employer, it's usually likely to be more expensive than if you buy it directly from a life insurance company.
Determining the Coverage You Need
Put simply, you should buy enough life insurance to cover all of your obligations. Those may include funeral costs, medical bills, debt, mortgages and loans, estate taxes and expenses, and future living expenses for any dependents.
The U.S. Department of Veterans Affairs offers an online Insurance Needs Calculator to help you determine the coverage you may need.
In some cases, a life insurance policy obtained through your employer will not be enough to cover everything, and it should be considered a supplemental policy to another larger policy.
Additionally, as your salary and living expenses increase, your life insurance coverage should also increase. However, once you have paid off your home and put your children through college, you may decide to reduce your policy amount.
On the other hand, when you are young, if you are unmarried, or have no dependents, you may not choose to carry life insurance at all until you start a family. If you do this, make sure you have enough set aside to cover your funeral costs and any outstanding debt, so it's not a burden to your friends and family.
Choosing a Life Insurance Policy
If you decide to not obtain life insurance through your employer, or if you're searching for a supplemental policy on top of what your workplace already offers, be sure to shop several different policies to get the best rate available.
Keep in mind that life insurance providers will do a risk assessment when they insure you. You may be declined if you have a serious health condition, or you may be accepted but have a to pay a higher premium.
Term life offers the lowest rates and provides coverage for a certain time period, like 10, 20, or 30 years. Term life insurance policies have no cash value, and your beneficiaries only receive a payout if you die during that term. Once the term is up, you will have the option to renew your policy, often at a higher rate. You can also convert your term life insurance policy into a whole policy.
Whole life insurance policies provide protection during your entire lifetime. They also accrue tax-free dividends, also known as the policy's cash value. You can also borrow against the amount of the policy. The premium also stays the same, though it's more expensive than a term life policy.