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October 20, 2020

Reassessing Life Insurance Needs After Losing Access to Employee Benefits

losing employee benefits

Good News/Bad News

There’s good news and bad news when it comes to life insurance ownership in the U.S. in 2020. The good news is that 54 percent of Americans say they have life insurance.1 The bad news is that 27 percent of those who say they have life insurance only have the life insurance coverage available through their employer.1

Wait, why is that bad news? On the surface, you might think that 27 percent are pretty savvy for choosing life insurance through their employer. Many companies pay for some amount of life insurance for their workers, although they are not required to do so.2

Group life insurance

Is offered by employers or other entities, such as organizations or associations, to their workers or members. It is usually fairly inexpensive and may even be at no cost to the worker or member.3 The employer or organization purchases the group life insurance policy, which is typically term life insurance, on a wholesale basis for individual employees or members to secure costs that are generally much lower than if the individuals were to purchase an individual policy.3

Term life insurance

Is a type of life insurance that guarantees payment of a stated death benefit if the insured person dies during the specified term. Group life insurance is often renewable each year through the company or organization’s open-enrollment process.3

Acquiring group life insurance seems like a smart way to acquire affordable life insurance — and it is — but many people may do so thinking their life insurance needs are met with employer-provided coverage.

The issue is not the coverage itself; rather the limitations to employer-provided life insurance that make it unwise for most to count on it to meet all their current and future life insurance needs.

The limitations of employer-provided life insurance

Your coverage may end if you leave your employer.

Most people are unlikely to stay at the same employer for their entire career. Statistics suggest the average person will change jobs five to seven times during their working life, and 30 percent will change jobs every 12 months.4 There is no guarantee your next employer will provide group life insurance.

Group life insurance through your employer will not have the options available elsewhere.

Again, there’s nothing wrong with employer-provided coverage, but it’s a one-size-fits-all approach. Life insurance isn’t one type of policy; it’s a range of different types of policies to meet the diverse needs of each family. The four most common needs families may face upon the death of an income earner are:

  • Final Expenses
  • Income Replacement
  • Mortgage
  • Education

These four needs are not static; they are as dynamic as an individual or family.

You may not be able to purchase the amount of coverage you need through work.

This is another aspect of the one-size-fits-all approach inherent in group life insurance. You may not be able to purchase adequate coverage for yourself or your spouse, which could leave your family vulnerable to financial insecurity upon your death.

This is why it’s so important to review life insurance needs annually or following a major life event.

Assess/reassess your life insurance needs

Buying life insurance through your employer is a no-brainer. It’s convenient, it’s generally inexpensive, and more often than not, you can have your portion of premiums (if any) deducted from your pay.

At the same time, people often procrastinate when it comes to purchasing individual life insurance coverage. They may think that individual coverage is too expensive. Consumers, in general, tend to overestimate the cost of life insurance; 44 percent of millennials overestimate the cost at five times the actual amount.5 They may not see the need either because they think their group life coverage is enough, or because they feel they don’t need individual coverage now but recognize they will need it at some point. Some major life events that can signal the need to assess or reassess one’s life insurance needs include:

Your birthday —

Some insurance policies have an end date for the term of the policy based on your age. Discuss your options for renewing the term or converting to a different type of policy.

Buying a home —

Your home is typically your biggest asset and your mortgage is usually the debt you will have for the longest amount of time.

Starting a business —

You can make provisions to help ensure the survival of your business.

Marriage or divorce —

In either circumstance, you would need to review the beneficiary of your life insurance.

Birth or adoption of a child —

This is one most people can’t ignore.

And finally — you knew this one was coming:

Changes in your job status —

Whether it’s a promotion, change of employer or you’re considering retirement, reassess your life insurance needs.

Keep in mind that two important factors affecting the cost of life insurance are your age and the state of your health. We’re all getting older and your health today is no guarantee of what it will be in the future. Take advantage of life insurance offered by your employer but it also makes good sense to consult with a licensed insurance agent now to help you decide the right type(s) of life insurance coverage that best fits your needs and budget.

  1. LIMRA, 2020 Insurance Barometer Study (November 13, 2020)
  2. Life Happens, 4 Things You Probably Don’t Know About Your Life Insurance at Work (November 16, 2020)
  3. CNBC, Why employer-provided life insurance can backfire (October 28, 2020)
  4. Career Advice Online, Career Change Statistics (October 12, 2020)
  5. Insurance Information Institute, Facts + Statistics: Life Insurance (October 12, 2020)

Categories: insurance, life insurance, term life insurance, whole life insurance

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