Should I Buy My Life Insurance Through Work?

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Many employers offer basic life insurance to their employees as part of their benefits package. This type of life insurance policy is often for a pre-determined, set amount; it may be for $10,000 or a year's salary, for instance. It is usually 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, think about the pros and cons. Also, think about what type of coverage would meet your needs.

Key Takeaways

  • Life insurance offered by your job may be very cheap or even free. But it often provides a low level of coverage.
  • You should have enough life insurance to cover all of your obligations; these could include medical bills, debt, mortgages and loans, estate taxes, and more.
  • If you decide not to get life insurance through your employer, be sure to shop around to get the best rate you can.

The Pros and Cons of Buying Life Insurance Through Your Job

A major benefit of getting life insurance through your job is how easy it is. For instance, you may know you need to get life insurance; maybe you 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. It is often very cheap, if not totally free.

Getting life insurance through work may seem like the best option. But it's not without its drawbacks. If you were to lose your job, you would lose your coverage. You could also have a gap in coverage if you were to quit your job and find a new job. 

Another thing to keep in mind is whether your company's plan is large enough to cover your needs. This is even more true if you have a spouse and other dependents. If not, you may have to buy a supplemental policy. And if you buy supplemental life insurance through your job, it's likely to be more costly than if you buy it directly from a life insurance company.

How Do You Determine 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.

Tip

The VA offers an online Insurance Needs Calculator to help you figure out the coverage you may need.

In some cases, life insurance through your workplace will not be enough for you. It should be thought of as a supplement to another, larger policy.  

Also, keep this in mind: As your salary and living expenses increase, your life insurance coverage should also increase. But 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, what if 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 debt you have. That way, you can ensure it's not an added burden to your loved ones.

What Are the Types of Life Insurance Policies?

If you decide to not get life insurance through your work, be sure to shop around to get the best rate you can. This is true even if you're searching for a supplemental policy on top of what your workplace already offers,

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 to pay a higher premium.

Term life offers the lowest rates and provides coverage for a certain time period; it's often 10, 20, or 30 years. Term life insurance policies have no cash value. That means 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. However, this often comes 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.