One of the benefits that many employers offer their employees is the option to purchase life insurance, or sometimes they offer a certain level of life insurance free of charge. If you have, or are considering buying life insurance through your employer, here are a few details that you need to know.
1. Your Coverage is Limited
Most employers limit how much life insurance their employees can purchase. Though limits vary with different employers, you are typically limited to purchasing one to three times your annual salary. Sadly, for most employees this amount is not sufficient to protect their loved ones.
Life insurance experts usually recommend that you purchase seven to ten times the amount of your annual salary. Depending on your personal circumstances, you may need to increase your policy payout even more.
Due to the limits of employer-provided life insurance, it is wise to view this insurance as supplemental rather than your primary source of life insurance.
2. The Life Insurance Doesn't Go With You When You Leave Your Employer
A downside of purchasing, or depending on life insurance through your employer, is that when you leave the company, your life insurance will likely terminate as well. Some companies permit you to continue the policy or convert it to a personal policy, but this varies dramatically from company to company.
This can leave you unprotected if you don't have a more permanent source of life insurance in place. There is also no guarantee that your employer will continue to offer life insurance as a benefit in the future.
3. There are No Protections for Your Future Insurability
An advantage to purchasing a more permanent source of life insurance via an insurance company is that it protects your future insurability. Once you get a permanent or long term life insurance in place, it stays with you, even if your health circumstances change.
For example, if you decide to purchase a 30-year term life insurance policy, the policy will remain in place for 30 years, even if your health takes a turn for the worse. Your premiums will also remain the same for the life of your policy.
Assume that you obtain your workplace insurance policy when you are 30. At the age of 40, you lose your position and your life insurance. The annual premium for someone in their 30s is much cheaper than the price for an someone in their 40s. You also may have developed certain health problems and thus, you may be denied life insurance or it might be too expensive for your budget.