Is Life Insurance Through Work Good Enough?

If you're fortunate enough to have a life insurance policy through your job, either at no cost or at a subsidized cost, you may have wondered if this coverage was enough to completely take care of your life insurance needs. Many employers may offer a certain amount of life insurance to employees through a group policy and may also allow you to add additional amounts for you or your spouse. You'll be responsible for paying the additional premium amount in this case. This may sound like a great deal on the surface – free or low-cost insurance through work – but there's another side to this plan that should be considered.

How Much is Enough?

Your employer may offer a great deal on no-cost or low-cost life insurance coverage, but the face amount of the policy offered may only be something like $100,000, $50,000 or even less. This is far less protection than someone with a spouse and kids will need in the event of the policyholder's untimely demise.

Many experts recommend your life insurance coverage be equal to eight to twelve times your annual income. Policyholders with large families will probably need even more. Another suggested method of determining your life insurance needs is to multiply your annual salary times the number of years you have until retirement.

What if Your Job Goes Away?

While it may be possible to cover your increased life insurance needs through supplemental coverage through your employer's group policy, having all of your life insurance through this one single source may be a mistake. It's recommended that any supplemental coverage you obtain comes from a separate third party provider. Then, if you quit your job, you're fired or your employer goes out of business and the insurance you have through your company is discontinued, you'll still have continuous coverage. Your third party policy will continue on and can be increased to make up for the coverage that was lost.

Another consideration is your state of health if and when you do lose the coverage provided through your job. If you've developed a health condition prior to losing your employer-provided life insurance coverage, you may find it difficult or impossible to replace the insurance you lost with a new private policy. The best time to buy life insurance is when you're young and healthy, before a health problem makes this prohibitively expensive or even impossible.