Employer-provided life insurance is a building block

Today, most people have their lone life insurance policy through work. Many employers offer it as a workplace benefit, and it’s referred to as basic group life insurance. There are both advantages and disadvantages to consider when looking into these policies.

Advantages of life insurance through work

  • Cost of the policy. This is a plan that’s purchased in bulk by your employer, and just like shopping for any other product, buying in bulk affords an attractive price. Many employees may be able to receive basic coverage paid for by their employer. 
  • Convenient. Getting coverage through work is usually easy. Most paperwork is part of the hiring process and HR can help if you have any questions.
  • Guaranteed coverage. Basic life insurance policies through work are usually guaranteed. This means that even individuals with serious health conditions will be able to get a policy. Many employers also offer supplemental policies for additional coverage without asking you to share information about your health. Although supplemental policies do help you to get closer to the actual amount of coverage you should have, you’ll likely still be short of the suggested amount, which depending on your age can be between 10x – 30x your annual salary.2

Life insurance through work can be a great building block, but there are several reasons to consider adding your own coverage for comprehensive financial protection.

Disadvantages of life insurance through work

  • Not enough life insurance coverage. Any bargain shopper will know that there’s usually a caveat to a good deal. Most group life insurance through work offers a relatively low policy ranging around $50,000 - $100,000, which may sound like a lot, but is a fraction of the suggested amounts you’ll find in the chart below.3 
  • It’s connected to your job: Even if you plan to stay at your current job for the rest of your life, your company may have to perform layoffs in the future, and this would cause you to lose your employer-provided life insurance. During the onset of the pandemic, many organizations had to unexpectedly cut ties with employees and this unforeseen termination can be devasting to your financial wellness. An extended stretch of unemployment could also leave you unprotected in an unstable economy, which can be an uncomfortable position, especially for a household’s primary earner. 
  • May not cover your spouse. While your employer’s health insurance typically covers your spouse, it’s not always the same for life insurance. If there is coverage, it’s probably minimal – around $100,000. While it’s better than nothing, it’s rarely enough to save families from the financial hardship that they may face after a premature death.
  • Lack of a permanent option. The life coverage you get through work tends to be term life insurance, which is tied to a specific duration of time, typically between 10 and 30 years. When this term expires so does your coverage. You may not have access to the range of options that could be better suited for your financial situation, such as whole life insurance, which offers permanent coverage and a guaranteed death benefit that’s paid to beneficiaries upon your passing.i  Whole life insurance also includes a cash value component that can be withdrawn or borrowed from during your lifetime, which can be used for milestone purchases like a down payment on a new house.ii,iv

How much life insurance do you actually need?

“The need for life insurance has never been greater than it is right now and that’s one of the new realities that the pandemic has brought to us,” said Mark Devine, Head of Product Management at Guardian, during the recent webinar, Let’s talk life insurance: Protecting financial foundations. Life insurance is protection for your family in the event of an emergency and ensuring that you’re adequately insured is crucial. At least 6 in 10 life insurance owners are underinsured but mistakenly believe that they have enough coverage.5 The basic term life insurance policies offered through work can be limited to low amounts — for instance, the same amount or double that of your annual salary. So, how much life insurance do you actually need?

Age

Maximum Life Insurance

18-40

30x income

41-50

20x income

51-60

15x income

61-65

10x income

66-70

1x net worth

71-80

1/2x net worth

81+

Case by case

Source: livingbalancesheet.com

“It’s a relatively big number,” says financial advisor, Neal Brincefield. “This is why it’s so important that both group coverage and individual coverage should be combined and really coordinated for most people to get to that level of appropriate protection. It’s going to take both.”

Getting life insurance outside your employer

If your family relies on your income, you’ll want to consider getting more coverage to protect them beyond an employer-provided policy. Meeting with a financial representative to review your needs can be a big help in figuring out the best options to keep your family financially stable after you’re gone. Whole life, universal life, or additional term life insurance are all options that can be a fit for your supplemental coverage needs. These policies offer benefits that typical group term life insurance won’t, such as guaranteed cash value growth that’s tax deferred.iii

Though group life insurance should not be overlooked, additional coverage can help ensure strong protection in the event of an untimely death. Basic group life policies through work help to round out comprehensive life insurance coverage; however, the limitations of these policies and the uncertainty of events that would terminate coverage, such as losing your job, mean that getting your own individual life insurance policy may help to ensure an after-death benefit for your family. 


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Disclaimer

i: All life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

ii: Some whole life polices do not have cash values in the first two years of the po icy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

iii: Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

iv: Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

Guardian Group Life Insurance and Voluntary Permanent Life Insurance are underwritten by The Guardian Life Insurance Company of America, New York, NY.  Products are not available in all states.  Policy limitations and exclusions apply.   Optional riders and/or features may incur additional costs. Plan documents are the final arbiter of coverage. 

Policy Form # GP-1-GPL-14

1 https://www.cdc.gov/nchs/pressroom/nchs_press_releases/2021/202107.htm

2,3 https://www.guardianlife.com/life-insurance/how-much-life-insurance-do-you-need  

4 https://www.guardianlife.com/life-insurance/study/protecting-those-we-love

2021-128860 20231130