Americans are dangerously under-protected when it comes to life insurance. Three in four American households without life insurance report they would have immediate or near-immediate trouble paying for basic living expenses in the event of the death of a primary wage earner.
But relying solely on group life insurance coverage from your employer may not be sufficient.
According to the LIMRA 2023 Insurance Barometer study, 54% of U.S. workers say they have life insurance through their workplace. More than half (67%) rely on workplace life insurance (theirs or another family member’s) to meet their life insurance needs.
Of the adults who only have life insurance through their employer, over half (53%) believe that the amount they obtain through work provides them with enough coverage, according to the study. However, the median basic coverage offered at the workplace is either a flat sum of $20,000 or 1x salary — far less than experts recommend.
Additionally, tax laws limit the deductibility of employer-paid life insurance premiums to those required to provide a death benefit of $50,000, when many American working families need several times that amount of protection.
Even among those who have group life insurance from their employers, half still report they would have immediate or near-immediate hardship in the event of a breadwinner’s unexpected death, according to LIMRA figures.
Buy your own policy
Even if employers weren’t cutting back on life insurance as an employee benefit, there are many good reasons to contact an insurance agent and take out your own life insurance policy. Here are five of them:
1. It goes where you go. If you leave the firm, you may lose your coverage. If you have a history of health issues, it may be difficult or impossible to get life insurance at that time. If you own your own policy, you don’t have to worry about losing your life insurance when you leave the company.
2. More coverage. While employers often limit what they’ll pay for to a death benefit of $50,000, or one to two times your salary, this may not be nearly enough. Experts often recommend owning at least 10-20 years’ worth of your current income in life insurance protection — particularly for younger families early in their careers.
3. More features. While most workplace life insurance policies are one-size-fits-all, buying your coverage from an agent in the open market means you can customize your insurance policy. For example, you can choose whole life or universal life insurance for permanent life insurance that accumulates cash value.
You can also get coverage to cover your spouse or domestic partner, whether or not they are working. Or you can choose to layer affordable term insurance with permanent coverage and convert your term insurance to more valuable permanent coverage over time, as your income increases.
4. Broader protection. As you go through your insurance needs analysis, you may uncover the need for other forms of insurance protection not provided by your employer. Since 2006, employers have become less likely to offer important insurance benefits like long-term care insurance, critical illness or cancer insurance and long-term disability coverage.
5. You control the policy. If you get all your life insurance from your employer, they could shut their doors, lay you off, go bankrupt, or simply cancel the benefit tomorrow. Again, if you’ve had medical problems, it could be difficult or impossible for you to line up replacement coverage. By owning your own policy and not relying on your employer, you guarantee that no one can terminate the policy except you.
