Is Life Insurance Through Your Employer Enough?

Group life insurance can be a good value, but it may offer less coverage than you need.

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Choosing the right type and amount of life insurance is an important financial decision that can affect your whole family. A common type of coverage that may be available as a workplace benefit for free or at a low cost is basic group life insurance offered by your employer. 

Life insurance coverage through an employer was available to 57% of private industry workers in March 2022, according to the National Compensation Survey by the U.S. Bureau of Labor Statistics

The industry research group LIMRA found that fewer than half of those without life insurance coverage surveyed in the 2022 Insurance Barometer Study said they felt financially secure. The same survey found that 68% of respondents who did have life insurance said they felt financially secure. 

But to really understand the role life insurance plays in a family’s financial security, you need to dig a little deeper and examine the details of the coverage you’re getting.

Let’s run through the basics of the group coverage that may be available through your employer’s plan, identify its limitations, and review the options you have for supplementing this coverage to safeguard the financial situation of your dependents. 

Is the amount of coverage enough?

Whether the amount of coverage you’re able to get is flat or based on your annual salary, you may want to consider more than what’s offered by your employer’s plan, especially if you have loved ones to support. 

If your life insurance is going to help provide your beneficiaries with enough coverage, you’ll want to review your family’s needs. Items to consider are your current debt, such as a mortgage and credit cards; your family’s living expenses for several years; and long-term financial goals like retirement or college education.

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How can you use term life insurance?

One of the primary purposes of group life insurance is to provide additional financial security in the form of a death benefit to the employee’s family and loved ones if the insured passes away. Since most employer-offered group life insurance policies are a type of life insurance called term life insurance, they don’t have cash value and you can’t borrow against them the way you may be able to with a permanent life insurance policy.

Is group life insurance your best value?

Because employers are effectively buying in bulk, they’re often able to get good rates on basic group life insurance for their organization. This helps keep the cost to employees low (in some cases, the premiums may even be paid by the employer), and that can make group life insurance a very valuable benefit, even when it doesn’t fully cover your needs. 

You may be able to purchase additional life insurance through your employer, but it’s likely the convenience may be offset by rates higher than you might qualify for as an individual.

Is individual life insurance difficult to get?

If your employer offers group life insurance to employees, getting coverage can be as simple as signing up during employee onboarding (most paperwork is part of the hiring process) or signing up during an open enrollment period if you’ve been with the company for a while. There’s usually no medical exam required (unless you want to buy extra group life), which makes it an attractive option if you have health issues that prevent you from qualifying for individual life insurance. You may even be able to pay your group life insurance premiums through a payroll deduction.

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Will it go with you?

With many group policies, your employer-provided life insurance ends when you stop working for the company. With others, you may be able to keep coverage, but your premiums could increase. Even if you don’t leave the company, there’s also a possibility your employer could change the option provided to employees, leaving you with less coverage than you’re used to.

Are there other options?

Group life insurance is often used to provide additional coverage beyond an individual life insurance policy that employees obtain on their own. That’s right—you can have more than one life insurance policy at the same time.

If you decide that the life insurance through your employer doesn’t fully meet your needs, consider getting an individual life insurance policy as well. Individual coverage can be customized to fit your exact needs. You’ll be able to apply for as much as you need (subject to the underwriting guidelines of the insurance company) at a rate that’s based on your situation, and it can last as long as you need it to. Evaluating your needs and adjusting coverage during the course of your life can be a smart response to your changing requirements for coverage.

AAA Life and its agents do not provide legal, tax or financial advice. Please consult your professional advisor prior to the purchase of any policy or contract. AAA Life Insurance Company is licensed in all states except NY. Life insurance underwritten by our affiliate, AAA Life Insurance Company, Livonia, MI. Products and features may vary by state.


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