So you’re considering taking the supplemental term life insurance offered by your employer this year. Why not? It’s cheap and easy, right? Well, not so fast. While it may be a good deal for some, you may want to consider the following factors in your decision.
- Cost – This is usually the first consideration, and rightfully so. We all have other things we’d rather spend our hard-earned money on. And while the monthly payroll deduction may be enticing, it could end up costing you in the end.
The reason? Take a look at the guy in the cubicle next to you. You know, the one who sneaks outside every 15 minutes or so for a quick cigarette and conveniently stops by the breakroom on every other trip for another Krispy Kreme donut. Well, chances are good that you are helping pay for his future heart attack in the form of higher life insurance premiums. That’s right … healthy employees subsidize the unhealthy ones. In most plans, the premiums are blended so that all employees pay the same premium, regardless of health or other factors (except coverage amount). So you may actually be paying more than you would if you purchased your own policy privately.
- Security – We’re talking the job kind here. What happens to your life insurance coverage if you lose your job? That could depend on the company’s plan. Some plans allow employees to convert their coverage into a personal policy and take it with them. While that sounds good on the surface, we must dig a bit deeper to determine if it really is as it sounds. For example, the convertibility may depend on the reason for termination. It’s more likely you could convert your policy if were are laid off as opposed to being fired for misconduct or other reasons.
Another consideration is the cost of conversion. The cost of most policies increases significantly once converted. While that’s not always the case, you will want to ask for a quote before signing up.
So employer-provided term life insurance may not necessarily be as good a deal as it seems, once you consider these important factors. However, it can be good for some; like the guy in the next cubicle with the perpetual jelly stain on his tie.