Northwestern Mutual

Employer Life Insurance Probably Isn’t All You Need

Most people who are offered life insurance at work take advantage of the benefit. And why not? Employer-sponsored life insurance usually costs very little and typically covers enough to at least take care of burial expenses.

But life insurance through your workplace usually covers only a fraction of what your family would need if you could no longer provide an income. Here are a few other things to consider:

  1. You probably can't take it with you. Most workplace life insurance stays in place only while you are employed by the company and only if you opt in for the benefit each year. When you leave your job, the coverage typically ends.
  2. You likely need (or will need) more coverage than what’s offered. If you're married, starting or growing a family, you may want additional coverage to pay the mortgage, fund your children's education or make sure your spouse can maintain his or her lifestyle if you die prematurely. But even if you're young and single, you still might want more coverage than what's offered by your employer—especially if you have debt. A life insurance death benefit can be used to pay off credit card debt or student loans, protecting your parents or other loved ones from that expense.
    You may be able to buy additional coverage through your employer's policy, although that, too, will likely end when you leave the company. As an alternative (and to supplement your workplace coverage), you may want to consider buying an individual life insurance policy directly from an insurer. That's coverage you'll own regardless of where or whether you work.
  3. You’ll want options for the future. When you buy an individual policy (outside what’s offered through work), it can grow with you. For instance, if you're young and have limited cash flow, you may choose to buy term life insurance because the premiums are initially less expensive. But as your priorities, goals and income increase over time, you may want to convert some or all of your term policy to permanent life insurance.
    Many term life insurance policies offer the option to convert to permanent life insurance—without having to take an additional health exam. That means even if your health declines, you won’t be denied coverage, and your new premiums will be based on your health status when you initially bought the term policy.
    With permanent life insurance, the premiums are higher, but it provides other long-term benefits, such as cash value. A permanent life insurance policy builds equity—or cash value—over time that you can use at any time and any age to help meet other financial obligations.1

Employer-sponsored life insurance is a great benefit, but if you want more coverage or greater control, consider a mix of employer-sponsored and individual life insurance. And if you do choose to buy an individual policy, don’t procrastinate. When you are young and healthy, there’s a greater likelihood that you’ll be approved for coverage and at a lower cost.