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When life insurance is offered as part of a benefits package through your employer, you may assume you’re covered.
Especially if you don’t have a mortgage or kids, group term life insurance may feel like enough. But that may not be the case, says Paul Felson, president of Felsen Insurance Services in Denville, NJ.
For one, life insurance is no longer a guaranteed part of a benefits package for many full-time employees. “One thing we’ve seen is that more small and mid-size companies may not have the means to offer coverage,” says Felsen.
Even if your company does offer it as an employee benefit, here are five reasons you might consider purchasing an individual life insurance policy.
A general rule of thumb: Your term life insurance coverage should be at least five times your current salary. So, if you bring home $50,000, this would mean at least $250,000. If you make $100,000, it’d imply a $500,000 policy. (Here's more on how much life insurance coverage you need.)
This rule of thumb is intended to help you offer financial support to loved ones who might survive you. That can include the breathing room to settle debts, stay current with a rent or mortgage, pay bills and figure out a new income stream.
Meanwhile, group term life insurance policies at small- and mid-sized companies are often capped at $50,000. Based on this 5x rule of thumb, $50,000 doesn’t come close to covering many people’s needs. Typically, this amount tends to cover funeral expenses, probate fees and not a ton more.
Making sure you have additional coverage can help ensure that your loved ones will be all right financially if the worst were to happen.
For the most part, when you leave your job, you’ll forfeit the life insurance that came as a benefit through that job.
On your way out, you might have an option to convert your group policy to an individual policy. Still, your monthly premium payments will more than likely go up when you do so. And probably by a lot.
As a result, it’s important to stay on top of your own coverage situation. Remember that you’re ultimately responsible for your own financial wellbeing. After all, relying on your company to do all the work might not be in your best interest.
Considering a term life insurance policy when you’re young can be a smart move.
That’s because, in general, premiums tend to be less if you’re younger and in good health, says Felsen. Buying as early as makes sense can help ensure your premiums are as low as possible for the term of the policy.
Following that logic, let’s say you relied solely on your employer's group term life insurance, and then you left that job. Now you don’t have any coverage. By the time you switch gigs, you’ll likely be older than you are today. That means you may well encounter higher life insurance premiums if you were to buy your own personal policy. (Here's how much more life insurance could cost if you wait.)
It’s important to read the fine print and make sure you know what is and isn’t covered.
Because life insurance policies through work are group policies, you may not be able to choose the options that work best for you. For example, the policy offered by your employer may only cover you for a specific term. Or, it may only cover accidental death (meaning you’d be covered against death caused by an accident, but not by an illness).
Your group life insurance policy through work may give you the option to buy a supplemental policy. If you do so, your premium payments will be deducted from your payroll.
This can be useful in some cases, as these supplemental policies are usually purchased in multiples of your salary, says Felsen. You might also have the option of covering a spouse or dependents. But, again, if you leave your job, the insurance is unlikely to follow you.
To ensure that your coverage is the best fit for your unique needs, you might want to consider getting your own, individual life insurance policy. That way, you'll be at the helm. Ideally, purchasing an individual policy will allow you flexibility and peace of mind. That's particularly true if you leave your job, move to another company or end up in-between positions for a while.
If and when your needs change—for example, you get married, buy a house or have kids—it’s a good idea to reassess your needs and your coverage. This is true whether you’ve got a group term life insurance policy through work, or your own individual plan.
That may entail increasing your coverage amounts or getting a personal policy, updating your beneficiary and more.
All in all, a work life insurance policy is a great benefit. Nonetheless, considering an individual policy might help you achieve the most benefit for your wallet, long-term security and peace of mind.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
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Accidental Death Insurance policies (Form VL-ADH1 with state variations where applicable) and Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT (all states except NY), and by The Penn Insurance and Annuity Company of New York (NY only). Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
All sample pricing is based on a 25-year old F in Excellent health for the coverage amount shown. All samples are for a 10-year term policy, unless otherwise stated. Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT. Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
A.M. Best uses letter grades ranging from A++, the highest, to F, companies in liquidation. Vantis Life’s A+ (Superior) rating, which was reaffirmed in April 2020, ranks the second highest out of 16 rankings. An insurer’s financial strength rating represents an opinion by the issuing agency regarding the ability of an insurance company to meet its financial obligations to its policyholders and contract holders and not a statement of fact or recommendation to purchase, sell or hold any security, policy or contract. These ratings do not imply approval of our products and do not reflect any indication of their performance. For more information about a particular rating or rating agency, please visit the website of the relevant agency.
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