The Problem with Employer-Provided Life Insurance

The Problem with Employer-Provided Group Life Insurance

If you’re fortunate enough to work for a company that offers employee benefits, life insurance through a group policy might be among the perks you can take advantage of. Group life insurance policies generally offer a decent amount of coverage at a reasonable price and some give the option of adding a certain level of additional (supplemental) coverage.

Sounds great, right? Now you can check getting life insurance off of your “to-do” list.

Or not.

While group life insurance through your employer is far better than no life insurance at all, it may not be enough to protect your family from financial hardship if the unthinkable were to happen to you.

The Downsides to Many Group Insurance Policies

  • Coverage Limits—Some policies may set a limit on the amount of coverage you can get. Often, the coverage you’re eligible for will be based on some multiple of your income. To obtain more coverage, you may have to apply for an additional policy from another source.
  • Less Flexibility in Benefit Options—Group life insurance doesn’t typically provide the option of adding benefit riders like those for accelerated death, child term, or disability.
  • Lack of Control Over Your Policy—With the policy owned by your employer, not by you, you could find yourself with no life insurance if your boss reduces the benefits or entirely drops the group policy.

And there’s more.

The Biggest Potential Problem with Group Life Insurance

Now you Have it, Now you Don’t — A group policy typically disappears if you’re laid off or if you voluntarily leave the company. So, if that’s your only source of life insurance, you’re banking on the idealistic vision that you’ll be working for your employer for a long time. Unfortunately, real world data shows that’s not very likely. According to the U.S. Bureau of Labor Statistics, the median number of years that wage and salary workers had been with their current employer was 4.6 years in 2014.

While some group policies are portable, allowing you to take coverage with you by remaining a part of the group after you leave a company, with most you simply lose coverage. If you opt to continue coverage with the group policy, be warned—you might find yourself paying a rather hefty premium to the insurance company.

Some group life policies offer the option to convert them to individual policies. These are also generally quite expensive, but they offer the advantage of being guaranteed issue. 

Term Life: An Affordable Way to Get More Peace of Mind

According to LIFE Happens.org, four out of every ten married couples have only group coverage. And one in four Americans believes he/she needs more life insurance. If your only form of life insurance protection is through your company’s policy, individual term life insurance might be just the thing you need to protect your loved ones financially and give yourself peace of mind.

Term life insurance offers coverage at premiums often significantly less than those for portable group and whole life policies. Best of all, they’re flexible in the amount of coverage you can apply for and the length of the time (the term) your policy will be in effect. Typical term periods are 10, 15, 20, 25, and 30 years. The term period locks in the policy cost for that specific time and your rates will not increase at any point during your coverage.

Luckily, it’s quick and easy to get a term life quote online. And if you need help determining how much coverage your family might need or have other questions about term life insurance, reach out to a trusted life insurance professional for guidance.

Dawn Mentzer

Dawn Mentzer is a solopreneur and freelance writer who specializes in blog content and marketing copy. She lives in Lancaster County, Pennsylvania and collaborates with clients nationally and globally. You can learn more about her at dawnmentzer.com and follow her on Twitter at @DawnMentzer.

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