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Jul 18, 2020, 8:13 AM
The author, Eric Rosenberg.
Courtesy Eric Rosenberg
Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
When you work for a great employer that values its workers, you often get access to a suite of benefits, including retirement account matching and several types of insurance. Many large employers offer group life insurance, an inexpensive type of life insurance that typically offers high levels of coverage at an extremely low monthly cost.
I've worked at several large companies throughout my career that offered group life insurance. I always took advantage, but still bought my term life insurance. Here's why I'm glad I made that decision.
Large employers may offer a range of insurance benefits to employees, including health, dental, vision, disability, life, and accidental death & dismemberment (AD&D). Each insurance has its place and value for workers.
Group life insurance is a type of life insurance where a single policy contract covers all enrolled workers. Most workers can get up to a certain benefit level with no medical exam and no additional review. For higher benefit levels, you may need to complete a detailed application and undergo a medical review.
Group life insurance benefits usually come in multiples of your annual salary. For example, if you make $50,000 per year, you could choose 1x, 2x, 3x, or so on for a benefit of $50,000, $100,000, $150,000, or more. The benefits you can qualify for depending on the deal your company's human resources team negotiated.
Because the risk of a payout is spread among a large group of covered workers, rates are often very, very low.
I just pulled up a pay stub from one of my first jobs to see what I paid for group life insurance right after college. I paid about $60 per year for 4x my annual salary. That came out to $2.38 per paycheck for a benefit worth nearly $200,000 if I died.
With a deal so good, what's the point in getting your life insurance policy outside of work? There are a few reasons. The biggest one of all is portability.
Most people don't keep the same job forever. If you ever decide to quit your job for something else, unless that job offers similar life insurance benefits, you could be left without.
I signed up for my term life insurance through an agent in my 20s when I was getting ready to start a family. I'm so glad I did because a few years later I became self-employed and lost those employer-sponsored benefits. Because I bought my term life insurance, my family is still covered.
Unexpected layoffs, firings, and other job losses happen all the time. At the start of the COVID-19 pandemic, more than 40 million Americans lost their jobs. If those people relied on their employer for life insurance, odds are they lost coverage when they lost their jobs. With your life insurance policy outside of work, you can keep your insurance no matter where your career takes you.
In most cases, doubling up on insurance leads to extra, unnecessary costs. I would argue that the opposite is true in this instance. If you have a regular job that offers group life insurance, it's probably a good idea to sign up for it in addition to your term life insurance policy.
Term life insurance offers your loved ones long-term protection at a reasonable cost. This protection goes with you from job to job and keeps your family financially safe for the entire period of the term, which could last for decades.
Adding group life insurance from work probably won't cost much, but it could give your family even more if something happens to you. When it comes to life insurance, if the price is right, more is generally better than less.
Group life insurance is low cost and generally an excellent benefit, but you only have the options your employer negotiated. That's generally a benefit worth a certain amount at a certain cost. You can't make any changes or personalize beyond that.
When you sign up for your own term life, you can pick the policy value, shop around for costs, and keep your policy for the long term. That combination of benefits makes your term life insurance policy a must-have for many forward-thinking American households.
