If your employer offers you the option to get life insurance through a benefits package, it may be tempting to take advantage of it, but the plan that you are offered might not provide best term life insurance policy for your family.
In this post, we’ll learn the pros and cons of using an employer-sponsored life insurance policy versus finding term life insurance suited to your family’s needs on your own.
Why You Might Want to Get Life Insurance Through Your Employer
It may seem like one less thing to worry about: deciding to get life insurance through a benefits package provided by your employer may seem like a quick and easy option for your family. Before we compare your options, let’s take a look at a few reasons why you may be considering an employer-sponsored plan.
Pro: It’s convenient
Using an employer-sponsored plan will mean that you won’t have to take the time to get life insurance on your own.
Con: Your options will be limited
Employer-sponsored life insurance policies present a limited range of options. You will only have access to the insurance providers and policies that your employer offers you to choose from—and there may be limitations as to the amount of coverage that you’re eligible for.
Pro: It may be free (or not)
Most employer-sponsored life insurance plans are free or priced at group rates.
Group rates for life insurance tend to be higher than what individuals can buy for themselves. This is because group rates are priced to cover the risk of accepting individuals without medical underwriting.
Con: You may give up a numerous benefits to save a small amount of money
Term life insurance is the most affordable life insurance for families and many policies provide multiple rider options. A plan with excellent coverage may cost as little as $150 per year. When you get life insurance independently, can find the best term life insurance plan for your family’s specific needs.
Other things to think about:
If you leave your job, you will lose your coverage and will have to get life insurance again. Unless you move directly into a new job that offers group life insurance coverage, you will experience a gap in coverage.
- Employers who allow you to get life insurance through a benefits package are offering you a privilege—it isn’t a right. Many large employers are now limiting (or eliminating) employee benefits packages altogether. If your employer does this, then you will be left without coverage.
- In some cases, employers may allow you to convert your policy from a group plan to an individual term life insurance policy, but the premiums may be much higher. Most of these policies are simplified issue life insurance and don’t require a medical exam, making them more expensive.
- Many employer-sponsored term life insurance options have conservative limits on how much coverage you may purchase. These limits may be well under the amount of coverage that you need to ensure that your family is protected and their needs provided for.
Let’s look at the benefits of choosing to get life insurance on your own.
Employers who allow you to get life insurance through a benefits package are offering you a privilege—it isn’t a right. Many are eliminating employee benefits packages altogether. If your employer does this, then you will be left without coverage at a time when it might be too expensive for you to insure yourself due to age or health conditions.
Why You May Choose to Get Life Insurance Independently
Just like with any other product or service, having more choices means that there’s a greater a chance that you’ll find a perfect fit for your needs. Finding the right term life insurance is no different.
» Calculate: Life insurance needs calculator
When you get life insurance, you are selecting a plan to secure your family’s future, so it’s wise to have every option available to you—from the amount of coverage that you may apply for to the insurance providers that you are allowed to choose from. When you choose to get life insurance independently, you won’t be restricted in your choice of insurance provider or type of policy you want.
Here are a few points to consider when deciding on the best way to get life insurance:
Pro: Term life insurance provides families with excellent coverage at highly affordable rates.
Cons: Your life insurance premiums will need to be paid by you, not your employer.
Unlike some employer-sponsored plans, it won’t be free, however your life insurance premiums won’t be as much as you originally thought. Plus, you can get life insurance quotes for free, with no obligation, so it’s always worth looking into your options.
Pro: Term life insurance is a more flexible option.
Term insurance allows families to get life insurance that meets their needs at different periods of their lives (a process called laddering that entails buying multiple policies of different term lengths to provide varying levels of coverage).
Con: You may need coverage for longer than your term.
Once your term is done (and if you have only one policy, rather than a group of laddered policies of different lengths) then you will have to either convert to a permanent plan or get life insurance again in the future since you will no longer have coverage. You may have to look for a new insurance company to find the best term life insurance plan for your family.
Meanwhile, employers often stick with the same insurance providers year after year, so when your term runs out, you most likely won’t have to put any effort into looking for a new insurance company—but you won’t have any of the other perks of having an unrestricted range of providers to choose from, such as lower rates.
When evaluating your choices, it’s important to note that the easiest way to determine which insurance company will provide the best term life insurance for your family is to compare a wide range of plans side by side, just like we help you do here at Quotacy.
Use Laddering to Create the Best Life Insurance Package
As we mentioned above, laddering term life insurance is an option where you get life insurance policies to cover different points in your family’s life when you anticipate your needs changing. Laddering allows you to avoid gaps in coverage and can also work as a supplement to an employer-sponsored life insurance plan.
Laddering Scenario 1
For example, Tim’s son, Mark, just got accepted into his dream college and has switched his prospective major from accounting to pre-medical studies. Realizing that Mark will be facing a minimum of four more years of university studies, Tim—who already has an employer-provided plan—decides to get life insurance to supplement his existing coverage.
Tim purchases a 10-year term life insurance policy that will kick in just as his other term life insurance policy’s coverage ends, when Mark turns 21. This will provide protection for Mark through medical school, the three years of his residency (when he will receive only a moderate salary and must handle significant student loans), and the first three years of his medical career.
Laddering Scenario 2
In another scenario, Jacob and his wife, Ellen, have just welcomed Emily, their first child. They purchase five term life insurance policies:
Policy 1 is a $100,000, 10-year term policy insuring Jacob as Ellen finishes graduate school and prepares for her teaching career. They will be relying solely on Jacob’s income during the majority of these years and the term policy’s death benefit can help replace Jacob’s income should he pass away unexpectedly.
Policies 2 and 3 are each $250,000, 20-year term policies, one insuring Jacob and one insuring Ellen. These policies will be active until Emily is through college to ensure the tuition can be paid for even if Jacob or Ellen should pass away.
Policies 4 and 5 are each $250,000, 30-year term policies, one insuring Jacob and one insuring Ellen. These policies will run the length of their mortgage, Emily’s college years, and up until Jacob and Ellen are preparing for retirement.
Both families in both scenarios will avoid gaps in coverage and have the right amount in place at the right time.
The easiest way to find the best term life insurance is to use an online tool like Quotacy’s to view the life insurance providers’ most important ratings—like Moody’s, S&P, JD Power, and BBB—while comparing your quotes on the same page.
Take a look at our best life insurance companies and get a quote in seconds. If you see a plan that piques your interest, you can start and finish your application in less than 5 minutes.
» Compare: Term life insurance quotes
About the writer
Director of Inbound Marketing
Kate is Director of Inbound Marketing working on business strategy, SEO, and writing for QuotacyLife. Kate's gift is explaining complex financial planning and life insurance topics in a simple and direct way to help families become more financially savvy and empower themselves to make wise choices. She works with Quotacy's underwriters to ensure the financial tips shared in her blogs are spot-on and truly helpful to anyone researching the ins and outs of life insurance online. If you would like a topic to be covered in our blog, leave Kate a comment below or connect with her on LinkedIn.