Is group life insurance through work enough?
Sure, it’s a nice perk of being employed. But it often pays to get additional coverage. Here’s why.
Like a 401(k) match or free snacks in the break room, group life insurance through work is one of those employee benefits that seems like it doesn’t require too much thought. You just set it and forget it. Right? Not exactly. Just as too many of those “free” snacks can be hazardous to your health, group life insurance can give you a false sense of security.
Don’t get us wrong: It’s certainly nice that your employer offers this free or low-cost insurance as part of your overall benefit package. But for reasons we’ll get into momentarily, this benefit often leaves people thinking they have enough life insurance coverage when that just isn’t the case.
When open enrollment season approaches, you might be thinking about whether group life insurance is right for you. That means examining the costs and the benefits, and making sure you understand both the upside and the drawbacks, so you can make the best decision for yourself and your loved ones. Below, you’ll find out more about what group life insurance is (and isn’t), and whether it offers enough coverage to protect those who matter most at a time when they might need it most.
In this article:
What is employer-provided group life insurance?
Let’s start here. Employer-provided life insurance, or group life insurance, is typically offered as part of your employee benefits package, and is intended to provide your beneficiary with some money in the event of your death. In short, the employer pays all or some of the monthly premiums, and the policy covers every eligible employee that signs up for it. Even if employees are asked to contribute toward the monthly premiums, group coverage is generally an easy and affordable way to secure life insurance coverage. Sounds ideal, right?
Well, not necessarily…
How much life insurance can I get through work?
While the specifics of each employer-provided insurance policy will vary, you’ll generally only be able to cover one to two times your annual salary. If you’ve already worked out roughly how much you’ll need, and that small amount is sufficient (generally if you have no spouse, dependents, or significant debt), then group life insurance through work might be enough for you — until circumstances change, of course.
Industry experts generally recommend you have enough life insurance to cover between 5 and 10 times your annual salary. And though employers may offer the option to buy supplemental life insurance coverage, you should compare premium rates to what’s on the open marketplace and also understand portability (does it go with you when you leave your job?) before deciding to buy a policy through work.
What does a group life insurance plan cost? Is it worth it?
There are certainly benefits to getting life insurance through work, starting with the fact that it’s often free (or at least very cheap). It’s also convenient because it seemingly reduces the need to compare life insurance companies, get multiple quotes, and often you can buy a policy completely online. (Hey, your benefits provider did the research for you.) It’s also more open to all — because group coverage is based on a broader collection of people, having a health issue that might cause you to pay higher premiums isn’t as much of a factor.
But as with those easy-to-access office snacks that usually don’t nourish your body nor soul, a group life insurance plan, while convenient, doesn’t always provide adequate coverage or the best value for your dollar. For example, if you’ve worked out that you need, say, a $1 million life insurance policy, it might be challenging to secure that much coverage through a group-offered life insurance policy and you could be paying more than you would purchasing an individual policy.
And again, it’s important to buy enough life insurance to cover all of your ongoing obligations. We mentioned earlier that the general rule of thumb for a sufficient coverage amount is 5 to 10 times your annual salary, and there’s a reason for that. Your coverage should be enough to pay your funeral and estate costs, debts, ongoing costs such as healthcare for your dependents, future education needs, and replace your salary—for far more than a year, if possible. (After all, it’s not likely that your family will be able to replace that income within 12 short months while also tackling the stresses that come with losing a loved one.)
In other words: If your group life insurance coverage through work is only one to two times your salary, it’s not exactly the financial safety net your loved ones need, is it?
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What happens to my life insurance if I change jobs?
According to the U.S. Bureau of Labor Statistics, people change jobs, on average, every 4.1 years, as of 2020. Throw in a global pandemic and inflation and, well, let’s just say things don’t feel as stable as they did even a few short years ago. And if you’re counting on your employer to help provide financial protection for your loved ones, you might be taking a risk, especially in this climate.
That’s because group life insurance coverage typically isn’t portable. Instead, it’s tied to your employment at that particular company, with your employer as the policy owner. If you leave your job, either to work elsewhere or because you’ve been let go, you’ll either lose your group life insurance coverage completely or have to pay a hefty fee to continue it. And while some group life insurance policies offer portability, you will often need to pay more for that feature.
Now, you might be thinking that a group life insurance policy will work for you in the short term, and that you can look for a separate policy at some point in the future. But consider this: The younger you are, the more affordable your monthly premiums will be with traditional life insurance. Plus, you never know what other factors might crop up in the meantime. An unexpected development with your health, for example, might impact your life insurance premiums when you try to apply for coverage.
That’s because, the younger and healthier you are, the less risk you pose to an insurer, so your monthly premiums will be much lower. Even if you’re in your 20s, having life insurance is important (especially if you have children), and you can still get affordable term life insurance into your 30s and beyond. But if you wait too long to apply for coverage, the cost of your life insurance will only go up.
What are some alternatives to a group life insurance policy?
When it comes to buying supplemental life insurance through work, it’s worth looking into an individual policy before you make the purchase. Putting some basic details through an online term life insurance calculator like Haven Life’s will give you a good idea of how much supplemental coverage you need as well as the monthly costs. For example, a healthy 35-year-old man would pay around $21 per month for a 20-year, $500,000 Haven Term policy.
Basic group life insurance through work is certainly convenient, but the main issue is whether it’s enough to give your family a financial safety net after you’re gone. While it might well be a good option for you for the reasons we’ve already covered, you’ll want to make sure that it’s enough coverage if you have a spouse or partner and/or dependents, or you have significant debts, mortgage or otherwise. If you’re looking for robust coverage that stays with you no matter where you work, it’s worth going directly to an agency, especially one that customers love to satisfy your basic life insurance coverage needs.
How can I make sure I get the right life insurance coverage for my family?
Ultimately, this is the most important question. Obviously, if you can get employer-provided life insurance for free, there’s little downside to getting it. But don’t just assume that it’s enough coverage for you and your family on its own — if you have financial dependents, you should investigate whether you need additional coverage.
For most people, this will mean considering a term life insurance policy, which remains one of the most affordable ways to get coverage for you, so that your loved ones have financial protection in case something should happen to you. Work is important — it provides value, meaning, and of course, a salary. (And maybe free snacks.) But to find peace of mind, sometimes you have to look beyond the office, virtual or otherwise.
About Emily Fowler
Emily Fowler left her career in finance almost 10 years ago to pursue her ambition to write, and has never looked back. Since then her work has appeared on The Billfold, FinTech Futures, The Dubs, and more. She gets immense satisfaction from making financial topics accessible and engaging, but her other writing specialty is pets.
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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
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Our disclosures
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html
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From start to finish I had no problem navigating my way through the questions. Not sure if I will keep my current rate or lower it late but glad I have the option.
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The insurance application process with Haven Life was seamless. I applied online on 3/8 and received a call within about 24 hours to schedule the paramedical exam. The appt set for 4/2, due to my schedule (requested a Saturday appt). The nurse came to my home, exam took about 15 minutes (verify my info, BP check in both arms, blood drawn, urine collection). Those results were available on 4/8. I received a few follow up questions 2 days later regarding prior prescriptions and medical tests from the underwriter. Answered those promptly, and my policy was approved on 4/20. Overall process was less than 30 days, excluding the wait time for the paramedical exam, which was due to my scheduling.
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