Is Your Life Insurance Tied to Your Job

The coronavirus pandemic has turned our entire world upside down. Tens of thousands of Americans have died, and millions have suddenly found themselves out of work. Just a couple months ago, national unemployment was at its lowest level in decades, and most people were feeling like their job was pretty secure and that they would be able to stay there until they decided to leave.

COVID-19 has been a wake-up call for many people, a reminder of how quickly fortunes can change based on circumstances that are beyond our control. A deadly virus like this forces us to confront our own mortality and the need for life insurance to protect our loved ones in case something unexpected were to happen, and it shows us that we cannot necessarily count on being employed at the same company, even if we have been there for many years.

This brings up an important question for many who have been laid off or furloughed during the midst of this pandemic; “is your life insurance tied to your job?” Because if your coverage comes from a group policy through your employer, then if you no longer work for this employer, you will probably lose it.

Many employers offer group life insurance at a pretty affordable rate. In fact, you might be able to obtain a certain amount of coverage free of charge, then you can purchase additional amounts of coverage up the maximum that is offered.

There is certainly nothing wrong with “free”; and receiving life insurance that you do not have to pay for is a nice perk to have while you are employed. The paid add-ons to your employer-sponsored group life policy might also be cheap enough to fit into your budget, and if this is the case, there is certainly nothing wrong with adding that extra level of coverage as well.

All that said, there are two major reasons why group life insurance through your employer is not sufficient to protect your loved ones in the event of a worst-case scenario:

The Amount of Coverage that is Typically Available through your Employer Is Insufficient: At a typical workplace that provides group life insurance, you might get free coverage that equals one year of your salary with the option to purchase add-ons that can provide coverage of up to three or four times your annual salary. For example, if you earn $50,000 per year, you may receive free life coverage of $50,000. Then you might have the option to purchase up to $150,000 in additional coverage, for a total of $200,000.

$200,000 might seem like a lot, but it is probably not enough to meet the needs of your family if you are suddenly no longer around. Your life insurance benefit should provide enough to pay for your funeral and burial, pay off your mortgage, auto loan, and other debts, and provide enough to replace your income until your youngest child turns 18 years old. Some people also consider college education for their kids a necessity as well.

While each family is unique and everyone’s situation is different, most experts believe that someone who is a primary breadwinner in their household needs enough life insurance to cover somewhere between five and 10 times their annual salary. So, taking the example used earlier, someone who is earning $50,000 per year should have, at a minimum, $250,000 in life insurance coverage. But most likely, they will need even more than that, probably at least $400,000. Unfortunately, most employers will not provide this level of coverage.

The Life Insurance You Receive through your Employer is Typically not Portable without Jumping through a lot of Hoops: As mentioned previously, employer-sponsored group life insurance is tied to your job. Usually, you cannot take it with you if you leave your employer, which means that if you are one of the 30 million or so individuals who has recently been laid off or furloughed because of the coronavirus, your life insurance coverage is most likely in jeopardy.

There may be a way to convert your employer-provided group policy to an individual policy, but this will usually cause the premium to skyrocket because the insurer will be taking on a significant risk by ensuring you independently rather than as part of the group. There might also be the question of insurability, and you may be required to undergo a medical exam to see if the insurer will even write an individual policy for you. The bottom line is, while you might have the ability to keep the life insurance coverage you had at your previous job, it will most likely make no practical sense to do so because of the additional costs and other possible requirements.

Individual Life Insurance Provides True Security: Whether or not you have access to group life insurance through your employer, having life insurance outside your job is critical, because otherwise, there is no guarantee that you will have this coverage when you need it. The good news is that life insurance coverage is much more affordable than most people realize. For example, many people can obtain a term policy that provides the coverage they will need for just a dollar or two a day. And even with some health challenges, most people can still get a reasonably priced term policy for around $100 a month or maybe a little more.

The key to finding the best life insurance policy to fit your needs and budget is to shop around, and the most effective way to do your shopping is to work with an independent insurance agent. Independent agents have access to dozens of the top insurance carriers in your state, and because they are not captive to any one particular insurer, they can objectively analyze your situation and find you the policy that best fits your specific circumstances. With a life insurance policy obtain independently, you and your loved ones will have the peace of mind knowing that this essential coverage will be there when you need it most.