Why You Shouldn’t Depend On Your Employer’s Life Insurance

For the first time in my life I’m buying life insurance.

I’ve always had life insurance coverage through my various employers, but I never bothered to purchase my own life insurance because I thought that I didn’t need it, and honestly I probably didn’t.  I had absolutely no assets, plenty of debt, no children, no spouse, no one depending on my income and enough in my retirement account to bury me…with a little money left over.

Fast forward a few years and my have things changed: I now own two investment properties; still have a decent amount of debt, but most of which is tied to assets; I’m not the only one depending on my income; and who knows about children in the future.  I’ve also had a world of insight into the inner workings of a company sponsored life insurance plan after processing insurance claims for the families of a few employees who passed away.

I know the I am not the only one who has counted on an employer sponsored life insurance to cover me should I pass away unexpectedly, but there are some problems with depending on your employer’s life insurance for coverage:

Problems With Depending On Your Employer’s Life Insurance:

  1. You are only covered while you are an employee of the company.
    Should you happen to leave your employer, your company’s life insurance plan is usually not portable.  When a plan is portable, it is usually not at the same rate that you paid as an employee.  You might also be required to submit to a health exam.
  2. You may expire out of the plan if out of work for an extended period
    This will happen if an employee goes on leave.  If you happen to fall ill and are unable to work you may lose this benefit.  This might not be the best time to lose your benefits if you are terminally ill, and yes, I’ve had to remove terminally ill employees from the company’s life and health insurance plans.
  3. Your employer’s plan lapses
    Think this can’t happen? What if your employer doesn’t pay the bill or if your employer is going out of business?  You will never know until your family has to file a claim.
  4. Your coverage may be limited
    Your employer may limit the amount of coverage that you are entitled to which might not be enough to cover your needs.  They may allow you to purchase additional coverage which can have limits as well.

But, employer sponsored plans are not all bad.  Just having an employer sponsored life insurance plan provides coverage to those who might not normally seek it.  One of my first tasks in Human Resources was processing a life insurance claim on behalf of the family of an employee who passed away at age 23.  I bet he never even thought of buying his own life insurance.

Benefits of An Employer’s Life Insurance Plan:

  1. It’s automatic
    Many employer plans will kick in automatically after working for the company for a certain amount of time.  You might not even know that you have this benefit.
  2. It’s free
    Most employer sponsored plans are free up to a certain amount.  If it’s free and it’s automatic, it’s kind of like icing on the cake.
  3. No medical exams needed
    You often do not have to submit to a medical exam in order to have coverage.  No exam, it’s automatic and it’s free!

Now that I am not working for my employer, I have no life insurance.  Instead of waiting to jump onto another employer’s plan, I decided to pull up multiple quotes online for an insurance policy that would afford my beneficiaries mortgage protection on those rental properties that I mentioned, debt elimination and income replacement.

I will say this, online quotes might not be 100% accurate.  After getting quotes online I narrowed my choices down to two companies directly and one broker.  Brokers works with multiple plans and will match you with the plan that best fits your requirements.  I decided to go with a provider who needed me to submit to a medical exam.

A representative arrived at my home early in the morning.  She took my health history, blood pressure, weight, blood and urine sample.  I honestly haven’t had such a thorough examination in years.  The results will then be forwarded to an underwriter who will figure out my risk profile and come up with a final number.  That’s fine if you like waiting up to a month, but you get a super low quote if you are healthy.

Another major provider gave me an initial quote online, but when the representative called the quote was different.  The second provider did not require any medical exams based on my age (below 35), however, this provider’s quote is $20 more per month than the first.  At this time I’d prefer to submit to the exam to get the lowest quote possible.

So, if you are still depending on your employer’s life insurance, please take some advice from someone who has had to process claims after an employee has passed away, get your own insurance and get it soon!  You don’t want someone like me to tell your family that you did not have insurance (it has happened). The sooner you purchase your own insurance, the cheaper it will be.


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2 thoughts on “Why You Shouldn’t Depend On Your Employer’s Life Insurance

  • Good information Sandy, I agree that it would be a lot more convenient to get private insurance because we can also be familiar and get to know more about life insurance. But i don’t disagree that life insurance from a company is free. Somehow, it will be deducted from our salary as contribution so we still have to pay for it.

  • That first point is the one that stands out to me – you’re only covered while you’re an employee. I can’t imagine the number of companies I’ve worked for (including a brief military stint) where I was paying for life insurance – life insurance I never used and that disappeared only because I left the job. So my payments were all for nothing, I guess. I think they should allow life insurance through employers to somehow roll over, like an IRA would…

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