Life insurance is a critical aspect of financial planning, offering protection for an individual's loved ones in the event of their death. While many companies provide some form of life insurance as part of their benefits package, these policies may not offer sufficient coverage.
Why employer life insurance may be easy to get, but not enough
Employer life insurance policies are undeniably convenient. As an included benefit, they require little individual input and are typically offered at no additional cost to employees. They are straightforward solutions to life insurance that often have these features:
- No underwriting
- Automatic approval
- Typically paid for by the employer
- More may be available through payroll deduction
However, there are downsides to employer life insurance:
- Capped coverage limit.
- Death benefit covers only one to two years' worth of salary.
- The death benefit may not provide adequate long-term support.
- Term coverage contingent on employment
- Age limits may apply; if working beyond the policy retirement age, there may be no coverage.
- Offers a one-size-fits-all approach.
- No customization for personal circumstances
As an example, a single young professional might fare well with the employer-provided death benefit amount of $10,000.
However, a parent with young children may need a significantly larger death benefit amount to cover lost income while the children are at home, outstanding debt, pay off the mortgage, etc. In this example, a $10,000 death benefit would not be sufficient.
The benefits of more extensive policies
Extensive life insurance policies provide a level of coverage and flexibility that may be more suitable for individuals beyond their employer-provided policies. There are numerous advantages these policies offer:
- A larger death benefit amount
- Individuals can choose their level of coverage
- Ability to consider various factors
- Number of dependents
- Outstanding debts
- Future expenses (like children's education)
- Desired lifestyle for the surviving family members.
This user-centric approach works toward tailoring the policy to the individual’s financial plan and goals.
Life insurance policies purchased outside of work
Life insurance policies that are outside of employment provide continuous coverage regardless of job status. This feature can be particularly beneficial during uncertain economic times or personal career transitions. While these policies are at the individual’s cost, there are benefits to having life insurance outside of one’s employer:
- Ability to customize policy
- Larger death benefit amount
- Various types of insurance are available
- Whole life, term, and hybrid policies available
- Riders for chronic illness or disability can be added to the policy
Another feature of life insurance policies outside of the employer is the potential for cash accumulation through whole life or universal life policies. This cash value can serve as an additional financial resource in times of need or even to supplement retirement income through a policy loan.
While company-sponsored life insurance policies may provide an easy solution, they often fall short in offering enough coverage. A financial professional can help you determine if the coverage is enough or if supplementing with a more extensive life insurance policy is appropriate for you.
Important Disclosures:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
LPL Tracking #821099
Sources:
https://www.cnbc.com/select/open-enrollment-employer-life-insurance/
https://www.protective.com/learn/life-insurance/understanding-group-term-life-insurance#
