Many employers offer basic life insurance as part of employee benefits packages. Having this free coverage can give the impression that you are covered for the future, but that is likely not the case. “Most company policies … fall well short of filling the overall life insurance needs,” says John Buerger, wealth coach at ALTUS Wealth Solutions.
The purpose of life insurance is to cover financial obligations that you owe and protect your assets for family. Often an employer-provided life insurance policy needs some supplemental coverage to provide adequate financial security for your loved ones.
The first thing is to determine how much life insurance you need. Do you own a home? Do you have significant financial obligations? Life insurance needs will be different depending upon your personal situation; however, there are certain rules of thumb that can help give you a guideline insurance amount. Typically, middle-aged earners with children should have 10x their annual income in life insurance. That guideline will fluctuate if you have a working spouse or several children.
Even if you find that your employer provided policy is lacking total coverage, you should still maintain the policy. Often, group policies are quite affordable and sometimes the base coverage included in the employee benefits package is at no charge.
Some of the better benefits of the large group coverage are the affordable rates and favorable acceptance policy. There are also more favorable exclusion terms for high-risk typically uninsurable classes. “If a person is uninsurable or in a high-risk class, group coverage may offer a level of coverage or rates that would otherwise be unavailable,” says financial analyst James Dowd. “On the other hand, a person in a low-risk class … is more likely to find better coverage through the open market than through a group plan.”
Remember to do the math. There are several life insurance calculators online that offer help choosing the right amount of coverage for your life situation.