Is free life insurance at work enough?

Anything getting free is always great! That is possible for life insurance through work. All you need to do is sign up during open enrolment at the time of choosing employee benefits and you would have the life insurance coverage paid by your employer for the coverage. This is true for most individuals at their place of work. These life insurance policies are normally known as basic life insurance plans they tend to be anywhere of $10,000 to $25,000 in total coverage. Some employers might offer supplemental group coverage which allows the employee to have additional coverage for pennies on the dollar, in many cases with no evidence of insurability even.  For instance, if a person is earning 25,000 per year in gross salary and this employee purchases supplemental insurance of 4 times their salary this person will now have $100,000 in coverage with full coverage, meaning that the policy will cover the employee in the event of death due to natural causes or accident for that amount of $100,000.  If the employee next year gets a promotion and he or she is now earning $30,000 per year and doesn’t make a change in his/her benefits that employee now has $120,000 in total coverage.

One of the biggest advantages of purchasing these policies is that they tend to be very inexpensive as I mentioned before, they’re normally charged per unit. One unit can be the equivalent to 1000. Using the above scenario before the promotion, the employee would have had purchased 100 units. The cost per unit could be for someone between 25-29 years of age about .08 cents. That means that this employee could be paying a total of $8 per month for $100,000 in coverage.  Someone that lies between 30 and 34 might pay a little bit higher about .9 cents per unit. Check with your human resources benefits specialist for rates.

One of the things to keep in mind is that the cost per unit adjusts as the person goes into the next age bracket. The normal brackets could be 18-24, 25-29, 30-34, 35-39, 40-44, 45-49, 50-54, 55-59, 60-64. What most people don’t know is that the cost per unit increases at a bare minimum rate in the first 5 to 6 age bands. However, once the employee hits the 50+ mark the rates jump drastically. They can be sometimes even $1 -$3 per unit cost or even higher. This is something to consider if all you’ve been relying on for your life insurance is your group coverage.

In 2015, 44% of life insurance policies that were purchased were through group coverage. It would be a risk of being covered by only this coverage. In most of the cases, they won’t get enough coverage as you expect said by Todd Katz, Executive Vice President at MetLife.

The reason behind bigger life insurance

According to the study by LIMRA, a life insurance research group, and consulting company, most of the Americans are using life insurance that is employment-based as compared to the policies purchased by the individuals outside of their work.

When people sign up, they don’t bother visiting the coverage of employer-based life insurance again. Nearly 40 % are the people who don’t make any changes in the coverage as founded by LIMRA research.

According to Rachel Podnos, a certified financial planner of Washington D.C. observed that the most of her clients are covered with life insurance at work. They are not completely versed with the amount of the coverage they have. The clients she gets in touch with are mostly having the issue of insufficient life insurance.

Usually, the coverage that employers offer in employee-based life insurance is nearly twice the annual income of the employee or maybe even lesser as much as $50,000. The coverage works until your job continues. It’s good to not have life insurance at present if you are single and you don’t have any financial dependents. Also if you have no debts that you’ll leave behind and your burial expenses are already 100% pre-paid then life insurance is probably not a necessity for you.

However, if you’re the head of a household or a stay-home parent you most likely need to have some coverage. The net amount of one or two years of your annual salary will not be enough to pay off for your house mortgage or for any other big financial consideration such as amount needed for the higher education of your kids, estate taxes, and your income replacement.

How can you know about right life insurance?

Some of the tips to assure that you purchase the right amount of coverage:

• Decide whether you are in need of life insurance

Life insurance needed or not depends on your financial obligations. Even as a single person, if one of your parents co-signed for your student loan, then you should have life insurance for the amount of the loan. In the event, you were to pass away your parent still liable for the balance of that loan. On the other hand, if you’re single and have not financial liabilities and your final expenses already taken care of then it’s safe to assume that you are not in need of life insurance. If one has to undergo financial crisis after your death or anybody depends on your income currently, then you should have adequate life insurance coverage.

• Compute the amount of coverage you want

It is important to know what amount of coverage is required by the persons who are financially dependent on you if your income stopped suddenly due to your loss of life. The rule of thumb is to take the number 26 and subtract it from your youngest child’s age. The number 26 is normally when individuals finish college considering they’ll have a master’s degree. That number would be the number of years you would need to have your life insurance in force. Another way to determine the length of time one needs to keep their life insurance for is by the number of years left on their mortgage whichever number comes last.

One way to determine the amount of life insurance, one needs to normally add up all of his/her current liabilities and future liabilities such as mortgage loan balance, credit card debt, vehicles loans..etc, They should also include in this total their future debt such as: funeral cost (depending on your age now you would either double today’s cost or triple) you would also include children’s college tuition and estate tax depending on your financial status.

Another way people calculate their needs for life insurance is by multiplying their annual gross income by 10 times. It is recommended by experts to purchase as much coverage as is enough. Also, make a decision of the time period for which you want to replace the income like a number of years.

• Decide the time of the life insurance

There are two most common types of life insurance –Term & permanent Life Insurance. Term insurance will only cover you for a certain period of time. Permanent Life Insurance will cover you in most cases for the remaining time of your life. Term insurance will cover you for a certain time of coverage; the most common time periods one can choose from are 10 years, 20 years and 30 years.  A permanent life insurance depending on how it’s structured could be designed so that if the person lives until the age of 120 the policy would be well funded and it will not lapse. When comparing both options, term life insurance is more affordable than permanent insurance for obvious reasons. The chances of an insurance company paying a claim on someone in a window of 10,20 or 30 years is less likely than someone that will be covered until the age of 120.  Experts recommend purchasing a blend of the two options. For instance, if your youngest child will turn 26 in 15 years then you should buy a 20-year term life policy with the total amount of coverage you determine you need based on the formula provided on the paragraph above. You should also purchase a permanent policy for a smaller amount perhaps 20% – 40% of the term life policy. This second policy will cover your final expenses and any other liability you might acquire later in life. Anyone who has kids to grow, their expenses, debts to pay should choose the life insurance that covers all their expenses during this period of time. When the term comes to an end, your kids will be independent to pay their own expenses. You will be having enough savings to provide for your partner and you won’t have the need for life insurance as much then.

• Choices to shop for life insurance

There are plenty of options for you to buy a life insurance. You can choose to buy an individual policy through an agent or through an insurance company directly. One of an easy way to get the best options for life insurance is to get quotes online for life insurance also by contacting one of our expert advisers here at ewslife.com. There are developing companies that provide exciting offers for life insurance for you as per your requirements.

The employers also offer opportunities for additional term life insurance via brokers. These insurances are portable you could and you don’t have to worry about it even after you change or leave the job.

Comparison of life insurance through employers and buying directly

Whether you purchase it from an employer or purchase it directly from an insurance company, you will find pros and cons in both.

If you are healthy and are in your 30’s, you will easily meet the requirements for coverage from employers than qualifying for the coverage for a policy you searched on your own. Different employers offer different coverage for and they don’t ask for medical information for additional coverage when you enroll in the policy as a new employee. But if you want to enroll for additional coverage later, you may have to answer some health-related questions.

The limitation of having coverage under employer is that you will not be able to fulfill your needs. If you have good health and you are young, you could definitely find coverage at a low rate. But the best part is that you will not be as limited to the amount of coverage like you would be through your work. Get the amount of coverage you need outside your employer as soon as you can before time goes by and the cost gets higher.

You need to ask some questions if you are going to buy coverage from an employer:

• If I purchase the maximum amount of coverage allowed, would this be adequate to fulfill the financial obligations of my family and those who depend on me?
• Can the coverage be portable after leaving the job?
• Would the requirement be the same as if I was applying outside of work?
• Would this coverage be payroll deduction, if so is there an additional admin fee for the convenience of being payroll deducted?

When you are buying additional coverage from an employer or outside, you need to make sure you have enough coverage. This is something that you do for your loved ones and to maintain their lifestyle. So, do your due diligence next time you see yourself in a situation of deciding the right coverage for you, your families’ livelihood depends on this decision. Please contact us for more questions.