Here’s What Happens if You Have Life Insurance Through Work

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Some employers offer life insurance coverage, but there are pros and cons to getting it. Here’s what to know about employer-provided life insurance. 

Life insurance is an important type of protection most people should have. In some cases, employers actually offer life insurance policies as a workplace benefit. When this is an option, it may seem convenient to simply buy coverage through an employer rather than shopping independently for an insurance policy and having to pay premiums directly out of a checking account.

But, is getting life insurance through an employer the right choice? Here’s what happens when people obtain this coverage through work.

Coverage should be available regardless of health

In many cases, the life insurance policies employers make available are policies that any employee can enroll in — regardless of health status. This means even people who might not be able to buy a policy independently due to a history of illness can usually get workplace coverage.

This is a major benefit for people who need to protect their loved ones but who have pre-existing conditions that make getting coverage difficult. Anyone who needs life insurance but who can’t get it outside of work should definitely sign up for as much coverage as their employer offers.

The employer may subsidize premiums

Employers sometimes pay part or all of a worker’s life insurance premiums as a workplace benefit. If that’s the case, there is no reason not to take advantage of the chance to put this protection in place for family members. Even if it makes sense to purchase additional coverage elsewhere, there’s no reason to pass up discounted or free life insurance.

Workers just need to be sure that when an employer is subsidizing life insurance, the employee is able to name their own chosen beneficiary. This is different from corporate-owned life insurance, which makes the company the beneficiary when a worker dies.

There may be coverage limits that are too low

When employers offer life insurance coverage through the workplace, there are often limits on how large the death benefit can be. These limits are not always very high. As a result, a worker who gets life insurance through their job may not have enough protection in place for loved ones.

A good rule of thumb is that most people need a death benefit that’s about 10 to 12 times their income. If a life insurance policy offered through an employer does not provide the chance to get such a substantial death benefit, then the worker may need additional supplementary coverage on top of what the employer’s insurer is offering.

Life insurance coverage could be lost with a job change

Finally, there’s a big risk to be aware of when buying life insurance through work. In some cases, losing the job would mean losing the insurance coverage. And that could be a huge issue if a health issue has developed or the worker has aged and can no longer buy separate independent coverage when the workplace life insurance is lost.

Workers should strongly consider getting their own separate life insurance policy outside of work even when an employer offers coverage, as a result of the risk of losing the policy as well as because of the potentially low coverage limits. Life insurance isn’t something to mess around with, and if a workplace policy doesn’t provide the necessary long-term protection, employees owe it to themselves to take matters into their own hands.

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