Life insurance
Is Life Insurance Through Work Enough? Five Questions to Ask About Your Employer Coverage
Having life insurance and having a life-insurance plan are not the same thing.
By Caleb Bullard · · 7 min read
The short answer. Usually not on its own. Employer group life is typically one to two times salary, far below the seven to ten times most families need to replace income, and it generally ends when you leave the job, change jobs or retire, which is often exactly when your health has made personal coverage more expensive. Keep the free group coverage, but own a personal policy sized to your family's actual need.
“I’m already covered.” I hear it constantly, and when we actually review the coverage, most or all of it is tied to an employer. That is not a bad thing. Free coverage is free. But 55 percent of working adults have life insurance through work, per LIMRA, and a large share of them are counting it as their plan. So here are the five questions I ask.
1. How much is actually there?
Most basic group life is one or two times salary, sometimes a flat $25,000 or $50,000. For a household earning $90,000 with a mortgage and two kids, $90,000 or $180,000 of coverage is roughly one to two years of breathing room. It is meaningful. It is not a plan. The amount most families need to replace an income and clear the big obligations is closer to seven to twelve times income, and the exact number should come from the job the money has to do, not a multiplier.
2. What happens when you leave?
Group coverage ends when employment does, with a short window, often 31 days, to port or convert it. Portability keeps the group term at group rates for a while; conversion turns it into an individual permanent policy at a price that is usually startling. People rarely read this section of the plan document until they are packing a box. The moment you lose the job, or retire, or go out on your own, is frequently the moment your health has changed enough that a new personal policy costs more or is harder to get.
3. Can you take it with you, and at what price?
Ask HR for the plan certificate and look for the words “portability” and “conversion.” If you are healthy, a personal term policy bought now will almost always be cheaper than a converted group policy later. If you are not, that conversion right may be the most valuable thing in the certificate, and you want to know about it before the 31 days start.
4. Is the beneficiary right?
Group plans are administered by a benefits portal, and the beneficiary is whoever you typed in during onboarding. I have seen ex-spouses, parents who have since passed, and blank fields. Check it today. It takes two minutes.
5. What would your family actually need?
This is the question that reframes the whole conversation. Not “how much insurance do I have” but “what would happen the month after my paycheck stopped.” Mortgage or rent. Childcare. Groceries. Debt payments. Multiply by the number of years you want that covered. Add the mortgage balance if you want it gone. Add education. Add final expenses. Subtract what is already there, including the group coverage. What is left is the number a personal policy should cover.
Why I say keep the group coverage and own your own
The group coverage is a good supplement and often free. The personal policy is the foundation, because it is the one thing that does not change when your job does. Fully underwritten term for a healthy 35-year-old is inexpensive, the price is locked for 20 or 30 years, and it is yours. If you later leave to start something, as many of the veterans I work with do, you will not be starting it uninsured.
A small note on taxes: employer-paid group term above $50,000 of coverage is imputed as income on your W-2 under IRS Section 79. It is a small number, but if you have ever wondered why a few hundred dollars of “GTL” appears on your pay stub, that is what it is.
What I would do
Pull the plan certificate. Confirm the amount, the beneficiary and the portability terms. Then run the household number honestly. If the gap is real, close it with a personal term policy sized to the gap and long enough to cover the years someone depends on you. Do it while you are healthy and employed, because that is when it is cheapest, and because the review takes twenty minutes and most people have been meaning to do it for years.
Questions people ask
How much life insurance do I get through work?
Most employer basic group life plans provide one or two times annual salary, sometimes a flat amount such as $50,000, at no cost to the employee. Supplemental coverage can often be bought through payroll, usually with health questions above a guaranteed amount.
Can I take my employer life insurance with me when I leave?
Sometimes. Many group plans allow portability or conversion to an individual policy within 31 days of leaving, but the converted premium is usually much higher than a personal term policy for a healthy person. Check the plan document before you leave a job, not after.
Is employer-paid life insurance taxable?
The cost of the first $50,000 of employer-paid group term coverage is excluded from income under IRS Section 79; the imputed cost of coverage above $50,000 is added to your taxable wages. The death benefit itself is generally income-tax free to the beneficiary.
How much life insurance should I have in total?
Build it from the job: the mortgage balance, years of income to replace times annual need, children's education, final expenses, minus savings and existing coverage. For most working parents that lands between seven and twelve times income; for others it is less. The rule of thumb is a starting point, not an answer.
Sources
This article is general education, not advice for your situation. Policy features vary by carrier and state.