Employer life insurance is usually not
One benefit that employers frequently offer is life insurance. Since
it's usually free, the experts say there's no reason not to take
it. But before you decide that's all you need, you should understand
what they're giving you.
Most employer-sponsored life insurance is going to be term insurance,
says Matt Tassey, chairman-elect of the Life and Health Insurance
Foundation for Education. Like homeowner's or car insurance, it
doesn't gain any cash value. More than likely, it will only be in
effect as long as you work for the company.
The amount of coverage the company gives you for free will either
be a flat amount or a percentage of your earnings, Tassey says.
Many times, that percentage is one, one and a half or two times
your annual salary. If you die or are dismembered in an accident,
the policy will pay twice as much. That's called double indemnity.
Even that amount, though, falls far short of what insurance professionals
recommend if you're married, have children and own a home. The professionals
suggest between seven and 10 times your annual salary, Tassey says.
The acid test is how much your family would need to live on if
you died, says Vic Tanon, president of California-based StaffPay,
an employee-leasing organization that employs more than 3,000 people
"I decided that my family needed $100,000 to live on per year,"
he says. "We figured out we needed a couple million in insurance
to bank and live off the interest. That's a conservative approach
and a more expensive one. But don't just take what your employer
has. Get more, depending on your needs. A $10,000 check won't help
If your company offers additional voluntary insurance for a fee
and you're in good health, you might be better off leaving that
offer on the table, Tanon says. Insurance companies charge employers
a higher premium on those policies because they have to accept every
employee that wants to sign up, including ones who smoke, are overweight
or have a family history of diabetes or cancer. So they adjust their
If you're young, in good health and don't smoke, you
can probably get a better policy on your own for 30 percent to 50
percent less than you can get through work, says Alan Ziegler, 2002-2003
president of the Society of Financial Service Professionals and
a Certified Life Underwriter. Company-sponsored voluntary insurance
usually will go up in price every five years; individual policies
on the private market routinely offer price locks of 10, 15 and
"Your employer is never going to buy you enough
insurance to cover your needs -- not even close," he says.
"The question is, 'Do I get it at work and pay for it myself,
or get it outside and pay for it myself?' It's always cheaper on
The drawbacks are that you'll probably have to go
through a medical exam before you're approved, and you won't have
the convenience of having the premiums deducted from your paycheck.
If you feel like you're too busy to go shopping for life insurance
or just don't want to think about that kind of thing, an employer-sponsored
plan is a great way to go. The chances are good that the extra insurance
will be available for your spouse, too. You may be able to take
the extra coverage with you if you change jobs, a term called portability.
"Nowadays, there are very few insurance sales people showing
up at your kitchen table to talk to you," Ziegler says. "You
can call an agent, but for many people, buying it at work is well
worth the additional expense. The coverage isn't that expensive
in any place. Buying it at work is preferable for many people because
of the convenience factor."
-- Posted: May 20, 2004