Many employers buy life insurance for their employees. But, is that something you can rely on for your family? There are several questions you need to ask.
Who Does It Cover?
Employers don't always buy life insurance to benefit their employees' families. They sometimes do it to protect themselves. The sudden loss of an employee can result in lost productivity, along with the costs of hiring and training someone new. When an employer takes out life insurance on their employees, they're trying to guard against these costs.
If you know your employer has life insurance, you should find out who the beneficiary is. If it's the employer, your family won't receive anything from the insurance company.
Do The Limits Match Your Needs?
Employers often buy a standardized insurance policy for all their employees. Since this doesn't take your financial situation into account, it may or may not be enough to provide for your family. For example, your financial planner might have recommended you carry $1,000,000 in life insurance, but your employer's policy may only provide $500,000 in coverage. You'd need to make up that gap on your own.
What Happens If You Leave Your Job?
You also need to know what happens to your policy if you leave your job. You may be able to plan ahead if you're planning on quitting. But what would happen if you're laid off without warning and you get hit by a bus on the way home?
Further, you need to think about whether you'd be able to get new health insurance. If you're older or have health problems, you may not qualify for coverage. Or you may have to pay much higher premiums than if you had bought your own policy when you were younger.
Is It Your Cheapest Option?
Finally, do you know if your employer pays the full cost of your life insurance? Or do you have part of your pay withheld? Just as 401(k) plans don't always have the cheapest and best investment options for you, employer life insurance plans may also not always be the best or cheapest option. Before opting into employer life insurance that you pay for, shop around to compare options — just as if you were buying the policy directly.
ALSO READ: Using Life Insurance as an Investment Tool