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When you start a new job that offers benefits, it may include a group life insurance policy, which is a nice perk. Although coverage is affordable and easy to qualify for, life insurance through your employer can often lack key benefits. For example, group life insurance may have limited coverage and is only in effect while you’re employed with the company. As a result, life insurance through your work shouldn’t replace your personal life insurance coverage.
Key Takeaways
- Life insurance coverage you can buy through your employer is called group life insurance.
- Group life insurance is a term policy that typically renews annually as long as you remain employed with the company.
- Group life insurance may not provide as much coverage as a personal life insurance policy, and if you change jobs, you can’t take it with you.
- Since the life insurance offered through your employer usually provides basic coverage, it’s a good supplement to your personal life insurance coverage.
Shortages and Features Missing in Work Life Insurance
Before signing up for life insurance through your employer, consider that work life insurance policies typically have the following drawbacks:
- Not portable: If you change jobs, you cannot take your current work insurance policy to your new job. Instead, you may need to sign up for a policy with your new employer.
- Limited coverage: When compared to individual policies, your company’s policy may have a significantly lower coverage amount, making it a more effective supplement to your personal life insurance.
- No cash value: Some individual life insurance policies allow you to cash out the policy at the end of its term, particularly if you buy coverage with that option. However, you don’t have the cash-out option with your life insurance policy through your employer.
- Only a term policy: Typically, a group insurance policy renews annually as long as you remain employed with the company. Unlike insurance coverage you can buy on your own, it’s not a permanent policy, meaning it won’t cover you your whole life.
- Not customizable: When you purchase personal insurance coverage, you can tailor the policy to meet your needs by adding riders. For example, you could add critical illness or family benefit riders for more comprehensive coverage.
- Long waiting period before coverage begins: Your employer may not allow you to enroll in a group life insurance policy unless you’ve worked there for a specified period.
Tip
If you’re unsure about the benefits you receive through your job, review your new hire paperwork for details or contact your human resources department.
The Bottom Line
A life insurance policy offered through your employer is a valuable benefit, but it may work best as supplemental insurance rather than your primary life insurance policy. Group life insurance may not provide the coverage limits you need and may not be there for you throughout your life. Instead, you can purchase and personalize a personal life insurance policy to protect your family’s financial future.
