Is Life Insurance Through Work Enough on Its Own?

If you work for a company around Mooresville, Statesville or Charlotte, there's a good chance life insurance showed up somewhere in your benefits packet. Maybe you checked a box during open enrollment, picked a beneficiary and never thought about it again. That coverage can be a real help. The question worth asking is whether it would be enough on its own if your family ever needed it.

Here's a clear look at how coverage through work generally works, where it can fall short and how to tell whether you have a gap. Every employer's plan is different, so your benefits booklet or HR department is the final word on yours.

How group life insurance usually works

Life insurance through work is usually group coverage. Your employer holds one master policy that covers many employees, and you're enrolled under it. A few things are common:

• Basic coverage is often provided by the employer at no cost to you. It's usually a flat amount or tied to your salary, such as one or two times your yearly pay.
• Supplemental (or voluntary) coverage lets you buy more through payroll deduction. The price is often based on age bands, so it may go up as you move into an older bracket.
• Health questions may be limited or skipped for smaller amounts, especially when you first become eligible. Larger amounts may require answering questions.

That ease is a big reason group coverage is popular.

Where coverage through work can fall short

It's tied to your job

Because your employer owns the policy, your coverage generally depends on staying with that employer. If you change jobs, get laid off, retire or cut back your hours, the coverage may end. Some plans let you convert to an individual policy or carry the coverage with you when you leave, but the rules, deadlines and prices vary by plan, and converted coverage can cost more than you expect.

That timing matters. The moments people often lose work coverage, like a layoff, a health issue that forces a change or retirement, can also be the moments when buying a new policy is harder.

The amount may not match your life

A multiple of salary is a starting point, not a plan. Think about what your family would actually need: the balance on the house, years of lost income, child care, college or paying off debts. If you've bought a home near the lake, refinanced or added a child since you enrolled, your needs may have changed while your coverage stayed the same.

You don't control it

Your employer can change or drop benefits over time. With a policy you own, the terms are set in your own contract.

A tax detail to know

Under federal tax rules, if your employer pays for more than $50,000 of group term life coverage, the cost of the amount above $50,000 is generally treated as taxable income and shows up on your W-2. A tax professional can tell you how it applies to you.

Group coverage and your own policy can work together

This isn't an either-or choice. Many people keep the coverage they get through work and add an individual policy they own. A common approach looks like this:

• Treat work coverage as a helpful extra while you have it.
• Own a base amount of coverage that stays with you no matter where you work, often through term life insurance for the years your family depends on your income.
• For lifelong needs, such as final expenses or leaving something behind, look at whole life insurance, which is designed to last your whole life as long as premiums are paid.
• If your main worry is the house, mortgage protection insurance is life insurance sized around your home loan.

An individual policy is generally priced based on your age and health when you apply.

Questions to ask about the coverage you have now

1. How much basic and supplemental coverage do you have today, and who is listed as your beneficiary?
2. What happens to the coverage if you leave, retire or reduce your hours?
3. Can you convert or take it with you, and what would that cost?
4. Does the supplemental price go up at certain ages?
5. If something happened to you tomorrow, would the total pay off the mortgage and replace your income for as long as your family needs it?

Your HR or benefits department can usually answer the first four.

Talk it through with a local broker

I'm Matt MacMillan, an independent insurance broker based in Mooresville. I can look at the coverage you already have through work, help you figure out whether there's a gap and compare individual options from the companies I represent. If your work coverage is enough for your situation, I'll tell you. You can read more on my life insurance page, and there's no fee for my help.

When you're ready, call me at (704) 802-2523 or request a call below, and we'll go over it at your pace.

This article is general information, not legal, tax or financial advice. Coverage, rules, features and availability may vary by insurance company and state, and every policy is subject to the insurer's underwriting and eligibility rules.