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Employer life insurance is usually not enough

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.

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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 nationwide.

"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 anyone."

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 prices accordingly.

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 20 years.

"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 outside."

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

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