Is Life Insurance Through Your Employer Worth It?

Life insurance tends to be pretty low on the list of financial priorities for most people, but it really shouldn’t be. If you’re married or have young children, life insurance is one of the most important things to have if others depend on you. What kind of financial hardship would your family be in if the unfortunate happened to you? These things are not fun to think about and that’s another reason life insurance usually gets put on the back burner.

The reality is that having life insurance is probably a good idea, but shopping for it can be a chore. If you work full time and receive benefits from your employer, you may want to check to see if they offer a group term life insurance plan for starters. Since this may only require a quick call to the human resources department it makes sense to start there.

Insurance

This came up recently here, which is why I wanted to bring it up. My wife came home with a packet of information about the term life insurance offered through work, and since we have been meaning to reassess our insurance coverage, it was a perfect opportunity to see how much it costs and compare it with other companies to see if it was a good deal or not.

One of the benefits of using your employer’s group plan is that you may be able to receive a decent amount of coverage without the requirement of having a medical exam. For those who may not be in great health, this can be quite a benefit if the group plan doesn’t require this while outside companies may, and may end up costing you more or be denied entirely. So, that is one thing to consider.

The other benefit is that when working with your employer’s plan it will come out of your paycheck just like your other benefits, so it’s simple. No monthly or annual payments to make, no missed payments, no stamps or mailing anything in, no setting up automatic bill payments, etc.

So, after looking through my wife’s plan I noticed the rates were quite affordable. We could receive five times her annual salary for around $21 per pay period, and this was with no medical exam. Even though this seemed reasonable, going this far was just enough to encourage us to find quotes from other companies to compare. And good thing we did. After looking around a bit we found two other options that were actually a bit cheaper for the same amount of coverage. That being said, even though the employer’s plan wasn’t the most affordable, simply checking into it made us then explore more options and find out just how affordable the insurance can be.

Now, like many employee benefits there is one big drawback. If you go with your employer’s plan it will typically only be available as long as you are employed there. If you go on to change jobs, get fired, or quit, the life insurance will go away as well. When you get a policy with a company on your own, you’ll have coverage no matter who you work for, so keep that in mind.

In the end, getting life insurance through your employer may or may not be the best for your situation, but at the very least it’s worth checking into. It’s easy, it may not require any health exams, and the premiums will come right out of your check like your other benefits. But if you go far enough to check into your employer’s plan, take the extra step and get a few quotes from other companies just to compare. You may be surprised at how affordable this crucial part of your financial wellness may be.

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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.

8 comments
Kevin @ Ask for Benefits
Kevin @ Ask for Benefits

There is one other hole in group coverage. Many people leave their employer due to disability. Most disabilities are sickness related, even though most people think more about accidents. 

The problem crops up when you apply for an individual policy to replace the group plan you just purchased. Not only are you no older and more expensive to insure, your disabling illness may either prevent you from getting a policy, or boost the rates even further. 

StumbleForward
StumbleForward

We added a group life plan last year when we switched insurance carriers last year and as long as we added 10 people to the plan we didn't have to do any medical BS.  On top of that we switched out of our high cost variable universal life policy and went with a 30 year term with a return of premium rider on it.  With the cost we saved we were able to add an extra $200k to each of our policies and it didn't cost us anymore than we were paying before we switched.

barbfriedberg
barbfriedberg

Jeremy, When our daughter was younger we took the inexpensive term insurance through the hubby's work and added another term policy. Affordable rates for lots of coverage.

FrugalRules
FrugalRules

I've always viewed the life insurance as a supplement to what we normally had. It's good to get if cheap, but should generally not be the sole source of life insurance.

Andrew
Andrew

I have term life insurance at work which is free (3 times salary) and the union offers a supplemental group life insurance that is cheap.  I'm looking into that right now.  The drawback, like you said, is that if you leave your job the policy terminates but I don't plan on leaving and as its a government job, it is relatively stable.

PrairieEcoThrifter
PrairieEcoThrifter

With my employer, it's actually free for me, so obviously we opt in. if we signed my partner up, it would cost around $5-$10 per pay period for $400,000 coverage. I haven't done that yet but we're waiting for the paperwork to do so.

Jenny at FrugalGuruGuide
Jenny at FrugalGuruGuide

My husband's term life insurance is through work and is at a very competitive rate--the very best rate for his age general offered.  So it works for us!

thefrugaltoad
thefrugaltoad

I just completed benefits enrollment ar work and upped the life insurance to make sure the kids college education is paid for.  Short-term disability rates have increased 100% over the last year, ouch!

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