Why Your Employer’s Life Insurance Plan Isn’t Enough

Open enrollment season allows employees to choose workplace benefits for the following year, including life insurance. Most companies offer group life insurance, which covers a number of people under a single policy. Group life is typically free up to a certain limit and it’s much easier to get approved for. (There’s rarely a medical exam or underwriting process, for example.) A quarter of all Americans with life insurance only have workplace coverage, according to the Life Insurance Research and Marketing Association. But employer-sponsored plans lack many benefits you get from a policy you buy on your own — including higher coverage limits, portability and room for customization. The good news is you can have an individual policy in addition to your workplace policy and enjoy the unique benefits of both.
You’re stuck with a term policy
Most employer-sponsored life insurance is term life insurance, which only covers you for a set period, usually 10 to 30 years.
If you want a policy with lifelong coverage — and that builds cash value you can use while you’re alive — you’ll need whole life insurance or another permanent life policy. Amica is one of our top picks for affordable whole life insurance, with low rates, a bundling discount worth up to 30% and an accelerated death benefit that’s included automatically.
Amica Life Insurance Learn More Cost The best way to estimate your costs is to request a quote
App available Yes
Policy highlights Amica offers four straightforward life insurance options — a level term life insurance, and whole life insurance policies payable for 20 years or until ages 65 or 100. Both term and whole life insurance policies include a terminal illness rider for free, allowing for an advanced death benefit if the insured is diagnosed with a terminal illness.
Highly ranked for customer service by J.D. Power, Mutual of Omaha offers whole life, standard universal life and two indexed universal life options.
Mutual of Omaha Life Insurance Learn More Cost The best way to estimate your costs is to request a quote
App available No
Policy highlights Mutual of Omaha offers term, whole, indexed universal life and universal life policies, giving lots of options.
Not enough coverage
A workplace-sponsored policy is certainly better than no coverage at all, but it probably won’t be enough to support your family. How much life insurance you need depends on many factors, but experts usually recommend a policy that pays at least 10 times your annual income. Group life policies usually only pay out one to two times your salary.
Supplemental coverage can be more expensive
If your workplace-sponsored policy is inadequate, you may be able to buy additional coverage, known as supplemental insurance. For older workers or people in poor health, supplemental life premiums may be lower than an individual policy on the open market. If you’re young and relatively healthy, though, you could end up paying a lot more. In addition, while you can get a standalone term or whole life policy with fixed premiums, rates for supplemental life insurance can increase with age.
Not much room for customization
Group life insurance is inexpensive for employers to fund because the payouts and options are limited. Your employer’s policy won’t have access to riders that tailor coverage, including: Accelerated death benefit: Lets you access funds if you have a terminal illness. (Some policies include this benefit for free.)
Lets you access funds if you have a terminal illness. (Some policies include this benefit for free.) Long-term care: Can access funds for home health care, assisted living facility or nursing home. Standalone long-term care insurance policies are increasingly rare, and a rider may be more affordable.
Can access funds for home health care, assisted living facility or nursing home. Standalone long-term care insurance policies are increasingly rare, and a rider may be more affordable. Term conversion: This lets you turn a term life policy into a permanent policy at no additional charge.
This lets you turn a term life policy into a permanent policy at no additional charge. Waiver of premium : Keeps your policy active if you are disabled and can no longer pay premiums.
: Keeps your policy active if you are disabled and can no longer pay premiums. Children’s term rider: Acts as a level-term policy for your dependent children and lets them buy their own permanent life policy in adulthood. The robust rider options with Guardian life insurance make it our favorite choice for customization. Endorsements include an accelerated death benefit, long-term care, term conversion and guaranteed renewability.
Guardian Life Insurance Learn More Cost The best way to estimate your costs is to request a quote
App available Yes
Policy highlights Guardian offers a variety of policies, including term, whole and universal. Term life insurance can be converted into whole or universal life policies. Pros Has paid dividends since 1868
Whole life insurance policies up to age 90
Available in all 50 states Cons Can’t get rate quotes or apply online
Customer service not available 24/7
Doesn’t offer auto or home insurance Learn More View More
It can’t build cash value or earn dividends
Since employer-sponsored policies are usually term life policies, they don’t have a cash value component, which can pay premiums or be withdrawn or borrowed against. Workplace plans also don’t earn dividends, which can build your cash value or cover the cost of premiums. The largest life insurance provider in the U.S, Northwestern Mutual has been paying dividends to eligible policyholders annually since 1872.
Northwestern Mutual Life Insurance Learn More Cost The best way to estimate your costs is to request a quote
App available Yes
Policy highlights The largest life insurance company in the U.S., Northwestern Mutual offers term, whole life and universal life policies. Coverage is available up to age 85 and Northwestern Mutual has paid dividends to eligible policyholders every year since 1872.
Read our review of Northwest Mutual Life Insurance.
You can’t take it with you
Group life insurance is usually tied to your job, so coverage ends when your employment does. That’s true whether you’re laid off, fired, quit or retire or the company goes under.
You may be able to convert your group life policy to an individual policy when you leave. You’ll have to pay the entire premium out of pocket, however, and the rate could be significantly higher than standalone coverage. An individual life insurance policy will stay in force whether you change jobs or stop working altogether.
Pros and cons of group life insurance
Pros Usually free or very inexpensive
No medical exam or health questions
Premiums are deducted from your paycheck
Cons May not be enough coverage
Supplemental insurance can cost more than individual policy
Usually terminated when you leave your job
Group life vs individual life insurance
These policy types have notable differences, including how much they pay out and how long they remain active.
Group life insurance Individual life insurance Type of coverage Term life Term or permanent Coverage duration During employment Up to 30 years (with term) or lifelong (with permanent) Portability No Yes Cash value No Yes Average monthly cost Usually free term life $20-$30, whole life $400-$470 Coverage amount Typically 1-2 times your annual income Can be $3 million or more for term coverage
Source: Rates from Policygenius based on a $500,000 death benefit for a healthy 30-year-old
FAQs How does employer life insurance work? Employer-sponsored life insurance is usually offered at no extra cost and with no medical exam. It’s typically a term life policy that is renewed each year and terminates if you leave the company. The death benefit is usually capped at one or two times your salary, but your employer may allow you to buy additional coverage, which is paid for through payroll deduction. What happens to employer life insurance when you leave a job? Employer-provided life insurance policies usually terminate on your last day or at the end of the month you leave. In some cases, you may be able to continue paying premiums on your own or convert your group life policy into a permanent individual life insurance policy. Does employer life insurance have cash value? Most employer life insurance is term life insurance, which doesn’t build cash value. Is employer life insurance worth it? If your employer pays for life insurance, it’s worth getting what you can. However, the coverage limits for a group policy are not enough for most people to keep it as their only life insurance.
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