By John Drachman
For many job seekers, a position with life insurance as an employee benefit is a win. But how “covered” are they really?
Day-in and day-out employer-provided life insurance may provide peace of mind to the employee concerned about the long-term financial well-being of their family. LIMRA, the life insurance industry research group, has tracked the popularity of employer-sponsored coverages since 1960. This type of employee benefit has grown so popular in fact that more workers are now covered by employer group life insurance than by private policies.
“In most instances, workers merely accept the free life insurance benefit without thinking it through,” reports CNBC’s Carla Fried. “Nothing is wrong with free, but free isn’t necessarily enough to protect most households.”
Here’s why: Many companies base life insurance coverages on a typical multiple of an employee’s salary. For example, one times the worker’s annual salary is typical – although some employers may offer up to as much as three times a yearly salary as an employee benefit. Anita Potter, a workplace benefits specialist at LIMRA, says, “If you are just out of college and don’t have debts or dependents that might be enough.”
However, if an employee’s personal and professional circumstances have advanced past the early career stage, it’s worthwhile considering how even the best-intentioned employer plan can come up short:
- The payout isn’t enough: Employees with a mortgage and dependents will need more insurance than the one times annual salary mentioned above. “At a minimum, the basic rule is that you want a policy that can pay off your debts, and if you’ve got young kids you might want to provide for their education,” says Jeff Rose, a CFP™ at Alliance Wealth Management. Many insurance professionals recommend at least seven-to-10 times one’s annual salary as a rule of thumb.
- Leave your job? Say goodbye to your insurance. The average person changes jobs 10 to 15 times over the course of a career. Chances are you too will move on to other opportunities – but your insurance won’t go with you. Consider supplementing your employer’s plan with your own individual plan, one that you can own outright which will stick with you regardless of your next job.
- It’s the employer’s choice; not yours: Your life insurance or carrier preferences don’t matter; you’re locked into your company’s benefit package. Service is limited too. The HR departments of private companies can’t provide the kind of personalized service that’s available from an insurance professional who’s ready to advise you now and for years to come.
The Bottom Line
Do you want to get a more accurate picture of your own situation? Try your hand at the math using this life insurance calculator. However, because this critical decision dramatically affects the long-term happiness of your loved ones, don’t stop there. Meet with a wealth manager or insurance agent to map out the “what if” scenarios in your own life – so your employer-sponsored plan doesn’t leave you short.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.