For the first time ever, more Americans have employer-provided life insurance (108 million) than have individual life insurance coverage (102 million), according to a new LIMRA study. And while that statistic sounds good, it actually hides a few important facts you should understand.
- 1. There’s more to the stat than meets the eye. When you dig a little deeper into the study, you find that households that have life insurance coverage through their employer is actually down to 46%, from a peak of 54% in 1984, so the fact is that the percent of employers offering coverage is declining.
- 2. If you have it, it’s most likely not enough. Most employer-provided life insurance coverage is one to three times your salary. So if you make $50,000, having up to $150,000 of life insurance sounds like a lot, right? But if you try to put that money to work in today’s interest rate environment, you’ll soon find out it doesn’t go very far. And if your family needs to spend $50,000 each year, what are they going to do after the third year?
I would also add that while your salary may be $50,000, what about your other benefits like health insurance? Employers pay an average of $19,000 a year for health care for an employee with a family of four. What if your family had to pay for their health insurance from that $50,000, too?
- 3. It’s a benefit, not a guarantee. Most Americans believe employers should be required to make life insurance coverage available (73%, according to the same study), but the fact is employers are not obligated to offer it. And remember that just because your employer is offering it now, doesn’t mean they will next year—or at any point in the future. A lot of companies are in cost-cutting mode, and benefits like life insurance can disappear without notice.
- 4. It doesn’t protect your insurability. Think about what would happen if your health changes while you only have employer-provided health insurance, but then they drop the coverage and you’re no longer able to get life insurance? Or what if you lose your job, or change jobs and the new employer doesn’t offer life insurance as a benefit?.
Typically, employer-offered group life insurance is not portable, meaning you can’t take that coverage with you when you leave a job. Some have the option to convert it to permanent life insurance, but what if you can’t afford that option? Buying an individual policy prevents this because it’s something you own. The bottom line, then, is that it’s good to have employer-provided life insurance, but don’t ignore the larger need you may have for individual life insurance coverage, too.