Monday, 16 December 2019

If your employer offers free life insurance as an employee benefit, you should take advantage of that perk. 

But you should also think hard about whether you'll need additional life insurance on top of the employer-provided policy.

Is the policy amount high enough?

For many people, the life insurance provided by their employer is a nice benefit, but it wouldn't be enough to take care of their family in the event of their untimely death. Coverage amounts are usually $25,000, $35,000, or the amount of your annual salary. And if your death would cause a financial hardship for your family or others, that may not be enough.

A traditional rule of thumb is to purchase a life insurance policy that is worth ten times your annual income. But that doesn't necessarily work for everyone. To figure out the right amount for you, determine the total of your long-term financial obligations, and then subtract your assets. For instance, if you want to pay off your mortgage, fund your children's education and provide a lump sum for your spouse to live on after your death, add up all those costs. Subtract the amount you have available in other assets, and the difference is the amount of life insurance you should purchase.

How long will your employer-provided life insurance last?

Even if the amount of life insurance provided by your company is high enough to meet your needs, it still may be a good idea to have another policy. That's because your employer-provided policy is tied to your current job, and if you leave your job, it would likely lapse. Even if you're able to convert your group policy to an individual policy, that may come with higher rates than what you could purchase on your own.

You could purchase your own life insurance policy at that point, but you'll likely save money by doing it now. Life insurance rates are based on your age—the younger you are, the cheaper the policy. So if you expect to leave your employer in five years, you may save money by opening a life insurance policy now and locking in a lower rate, rather than waiting until you're five years older.

In addition, if you develop any health conditions, you may not be able to secure affordable life insurance on your own. If you ever think you'll need more life insurance than what's offered by your employer, you'll save money by purchasing it sooner rather than later, as you are younger and possibly healthier than you will be in the future.

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