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Is It Enough to Have Life Insurance Through Work Only?

By March 18, 2021No Comments


Even if you have life insurance through work, you should give serious consideration to getting a private policy on the outside. As the saying goes, never have all of your eggs in one basket, and that’s absolutely true for life insurance.

This became most evident during a conversation of someone seeking life insurance through me. The gentleman was in his late 40’s and was desperately seeking coverage.  He had well over $1 million of life insurance coverage, but it was all through his work.

Why was this such a big issue?

Well, for starters he hated his job.  It was super stressful and he was well past his breaking point. He wanted to quit but was unable. Why?

He was the sole provider for his family and because of a recent serious heart condition, he was unable to get outside life insurance coverage. His wife forbid him from quitting until he lined up another job that offered similar coverage, but leaving would probably mean he would see a 30% drop in his salary.

With two kids, a mortgage, and other debts, she and her kids would be in financial ruin if he left his job and passed away. This poor guy was stuck.

He was stuck in a job he hated because he never thought to take life insurance outside of his employer. This is a just one example why only having life insurance through work is a BAD idea.

“I Don’t Need More Life Insurance – I’m Covered at Work”

This is a common response to the question of life insurance by people who have life insurance through work. Usually, not much thought goes into determining if this cliché is even valid.

For example, most employer life insurance policies fall far short of the amount of coverage that you actually need. Your employer will have a type of life insurance chart that may offer you a $50,000 or $100,000 policy at no cost. But that will be totally inadequate if you have a young family and actually need something closer to $500,000 or more. As a rule of thumb, it’s 10 times your annual income.

Some employers do offer supplemental life insurance coverage where you have to pay the premium for the additional coverage. While this may sound like a good option on the surface, it will still keep all of your life insurance with a single source.

And that presents a number of problems…

What If You Lose Your Job?

You may plan to stay on your current job for the rest of your life, but the reality probably won’t cooperate. According to the most recent data by the US Bureau of Labor Statistics (BLS), the average stay at a job is 4.2 years. Considering that a career may span 45 years, that’s what (?) – ten jobs over a lifetime?

An important factor that the BLS statistic doesn’t account for is the not-so-unusual practice of employers to reassign workers from employee-with-benefits status to unbenefited sub-contractors. It’s called “cutting payroll costs” and it plays well with Wall Street analysts and investors.

What If You Want to Start  Your Own Business?

Get Started

Then there’s also the possibility of experiencing extended periods of unemployment in between jobs or starting your own business. This becomes even more likely during recessions, when you may find yourself without a job or insurance coverage for many months.

Whether by separation or by reassignment, your current employer provided life insurance policy will come to an end at some point, and likely a lot sooner than you think.

Though you may simply assume that you can get a private plan at a later date when it becomes absolutely necessary, there’s a not so minor complication…

What If You Develop a Health Condition Before You Lose Your Job?

The standard advice when it comes to purchasing life insurance is to do it while you’re healthy. If you develop a health condition, and later lose your job, the option to purchase a private policy could disappear.

Certain health conditions can make it impossible to get a life insurance policy, particularly if that condition is fairly recent. And even if you can get policy, it will come with a risk adjusted premium, that will make it cost much more.


Keep Your Life Insurance Through Work – But Add a Third Party Policy

You certainly want to keep a life insurance through work policy, particularly if it’s one that you don’t have to pay for. But any additional coverage that you need should be through a private policy purchased outside of work.

Are you familiar with diversification as an investment strategy? It’s also valuable when it comes to purchasing life insurance. Your financial situation is more secure if you maintain policies through two or more completely separate entities.

As a life insurance agent, I can help you purchase a private policy. There are several reasons why this is better trying to buy a policy directly from a life insurance company:

  • My services will not cost you any more than buying the policy directly from the life insurance company.
  • I can handle all of the paperwork and nuances that are part of the life insurance application process – which you are probably totally unfamiliar with.
  • I can get you the best policy for your needs, at the lowest possible premium rate. In this way, using a life insurance agent will actually save you money on your policy.
  • I know who the better insurance companies are, and will place your application with those, so that you don’t waste time and application fees applying to companies that won’t be a good match.
  • In the event that you need to add additional insurance or even change policies in the future, I will be there to help you through the process.


Why You Should Lock in Your Rate on a Private Policy As Soon As Possible

Earlier I talked about the risk of developing a health condition before you lose your job, and how that can complicate (or even eliminate) your ability to get a private life insurance policy. But there’s another much more common reason why you should want to purchase a private life insurance policy, and do it right now:

Your life insurance premium will never be lower than it will be TODAY!

That’s due to the simple fact that age is one of the major factors in determining life insurance premiums. If you are 30 years old right now, the premium on a private policy will be much lower today than it will be when you’re 40 or 50.

By locking in the premium rate on a long-term term life insurance policy now, you will spare yourself both the higher premiums that will come with age, and the possibility of being declined for poor health.

I’m ready by the phone any time you’re ready to move past “I don’t need more life insurance – I’m covered at work”. That assumption could be hazardous to your family’s financial health.

Jeff Rose, CFP® Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, and Entrepreneur.