Do your work benefits provide enough life insurance?

Many employees receive life insurance through their work as part of their benefits package, offering a convenient and cost-effective way to gain basic coverage and protect loved ones. While life insurance through work is a valuable starting point, it may not be enough to cover a family’s financial needs. Understanding the limits of workplace coverage and when it might make sense to supplement this coverage can be an important part of long-term financial planning.

Benefits of life insurance through work

Life insurance offered through an employer can be a simple and affordable way to get started with coverage and ensure family members have a level of financial protection if the unexpected happens. There are many benefits that come with life insurance through work, including:

• Employer life insurance is typically free or available at a low cost. Having life insurance through work is a good way to get coverage for a minimal cost.
• Getting coverage can be quite easy. Oftentimes, the paperwork is straightforward and an HR person can help explain the ins and outs of the policy.
• Typically, there is no medical exam necessary for workplace coverage. This may mean that people with serious medical conditions can qualify.

How much life insurance do employers offer?

Employer-provided life insurance typically offers coverage equal to one year of the employee’s salary, though some plans may offer more or allow additional coverage for a cost. While it’s a valuable benefit, this amount may not be enough to replace lost income and fully protect a family’s long-term financial needs.

Limitations of employer life insurance

Life insurance through work can provide a solid foundation for coverage, but there are a few limitations to keep in mind.

Not enough coverage

Depending on current needs and situation, life insurance coverage through an employer may be sufficient, but if there are people who depend on you financially, it may fall short. The median basic coverage offered at the workplace is either a flat sum of $20,000 or 1x salary. For someone who is married, has children, owns a home, or is planning for any of these things, that amount may not be enough to provide lasting financial support.

So, how much life insurance should you have? It depends on factors like financial responsibilities, dependents, and long-term goals. Coverage needs can also change over time as circumstances shift, such as a growing family, lifestyle changes, or moving to a new home.

Options are limited

Coverage through an employer is typically group life insurance and employees have no control over the coverage or policy details and cannot customize coverage to fit their personal needs. Some plans may let you add coverage for a spouse or kids, but the benefit amount might not be enough for every situation.

Linked to employment status

An important limitation to keep in mind is that coverage is tied to employment. The employer is the policyholder and can change or drop the policy at any time, and if an employee leaves their job for any reason, they may lose their coverage. If coverage is portable, the coverage may cost more once the individual leaves the employer.

Why buy life insurance outside of work?

Buying life insurance outside of work offers greater control, flexibility, and long-term financial protection. Unlike employer-provided coverage, individual life insurance stays with you even if you change jobs and can be tailored to better meet specific financial needs and goals. Life insurance through work can serve as a solid starting point, but additional coverage may be necessary to ensure there’s enough protection for a family’s needs. According to LIMRA, more than 4 in 10 households that only have workplace life insurance coverage say their families would struggle financially in less than six months should a wage earner die unexpectedly. Individual life insurance can help round out a financial plan and make sure enough coverage is in place.

Choose the type and amount of coverage

A person’s paycheck is a valuable contribution to their family, and without it, their loved ones may struggle to pay for final expenses, keep up with the rent or mortgage, and cover childcare or other day-to-day expenses. Life insurance can offer financial protection in the event a wage earner is no longer here. By purchasing a personal policy, you can select a coverage amount that can provide a death benefit that aligns with your needs. Depending on the type of life insurance you choose, you can select how long you would like to have coverage, whether it’s for a specified period of time like term insurance or permanent life insurance.

Options to fit the budget

Many families may shy away from exploring life insurance options because they assume coverage is too expensive, but in reality, it often costs much less than they think. According to a LIMRA study, about 72% of Americans overestimate the true cost of a basic term life insurance policy. Many individual policies are often affordable and fit into most budgets, making it possible to offer families peace of mind without breaking the bank.

What are the options for life insurance outside of work?

If the unexpected happens, individual life insurance can complement workplace coverage by providing financial protection and helping bridge any gaps. There are a variety of options available to suit different financial situations and goals. Here are two common types:

Term life insurance

For affordable coverage that offers death benefit protection for a specific time, term life insurance can be a good option. This type of coverage generally provides a death benefit in the form of a lump sum that is paid out to a beneficiary if the insured dies during the term period. Premiums must be paid to keep the policy in force and prevent it from lapsing.

A beneficiary can use this benefit to help with funeral costs, the mortgage, debt payments, or other living expenses. Additionally, term policies may offer the option to convert a policy to permanent coverage before the term ends. After the term period expires, the policy generally will either terminate or automatically renew annually at a higher premium cost.

Permanent life insurance

For those looking for lifelong coverage, permanent life insurance may be a good fit. This type of policy is designed to provide a death benefit that lasts a lifetime, as long as premiums are paid. In addition to coverage, permanent life insurance may also build cash value over time, which can be accessed through loans or withdrawals, depending on the policy terms.

Does life insurance through work leave you with coverage gaps? Midland National may have the solutions

If you need help determining the right amount of coverage and the best type of life insurance for your family, consulting a financial professional can provide valuable guidance. They can discuss your individual financial needs and where individual life insurance can provide the additional coverage your family needs to help protect their financial future.

As you build your financial plan, Midland National offers a variety of life insurance and annuity solutions designed to help you reach your financial goals and offer peace of mind and financial protection through every stage of life.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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