Employer-Paid Life Insurance… Do We Need More?

Many people have the fortunate experience to work with a company that takes charge of many little details to make their life better, easier to manage and at a lesser cost. It could be medical insurance, dental insurance or life insurance. When we take a look at the first 2, there is not much that we can do to improve the group-paid plan of an employer. It usually has the advantage to be at a lower cost because it gathers a lot of people in the same policy so the insurer is willing to charge  far less. Sometimes, you can add some characteristics on the group plan to make sure that you are fully covered.

But regarding the life insurance, it is a little bit tricky. Yes you have the enormous advantage of the group so you pay a little less for you coverage… but…

Here are the 2 main “but”s…

The most critical aspect of life insurance, far before looking at premium and challenging what type of life insurance we want, is the fact that everybody has to build their own financial needs analysis. This analysis is so important in 2 ways. First, it defines what is the exact amount of coverage you need in case you die prematurely. And secondly, it covers also the amount of money you need to stop working and retire safely.

It is the basis of financial planning but nearly no one gets through this part. By not knowing the proper amount of coverage, you spouse could be desperately in deep need if you were to live quickly. Generally speaking, most people that have this benefit at their job will receive 1 full year of salary in case they die. This is why most people should compare their financial needs analysis with the actual coverage they have at their job. The great majority will find that they are missing tens of thousands or hundreds of thousands of dollars of coverage. So they can benefit of a part paid by their employer and also make sure they are not in a life insurance coverage deficit.

By knowing the amount of money they need for retirement, they will also get to prepare their savings program much more sooner! Because life insurance is THE most important tool to protect your family in case somebody dies too soon. But on the other hand, you don’t need life insurance at retirement… you need money put aside, ready to pay your bills by the time you are still living! That’s why, after completing a financial needs analysis, I recommend using term life insurance to properly match your life insurance needs throughout time.

The second “but” is the fact that the benefit you are receiving from your employer  will belong to you as long as you stay working for that company. What that means is that we cannot control the future. People working for the same company for 25-35 years don’t exist anymore. So if you base your life insurance coverage solely on the benefits you have at you current position AND that something happens, like a lay-offs, downsizing or simply you quitting your job, you won’t benefit from the group plan anymore. And If you lose your benefits at 45 years old or 55 years old, the cost of getting a life insurance is not the same that the one of a 25 years old person. Needless to say that medical challenges may occur in those years too. So you would pay a lot more for your coverage and maybe you will pay an additional premium or, even worst, you could be declined because of your medical history.

To counter that, you better use a financial needs analysis to set up the exact amount of protection you need, build your plan from A to Z and then subtract the amount of coverage you have from your job group plan. That way, you have an excellent base for your protection and you benefit from the employer group benefits. If you were to change jobs, you will still have a solid coverage and if your future employer doesn’t offer a group plan that includes life insurance, you will easily be able to add up some coverage without hurting your wallet.

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