You might have been offered life insurance through an employer, which is fantastic—employer-sponsored life insurance isn’t always a guarantee as a benefit. But, there are a few things to know about this type of life insurance, also called group life insurance.
Read on to find out what group life insurance is, what are commonly used terms, and why your employer-sponsored term life insurance might not be enough coverage for where you are in your life.
How group life insurance works
Group life insurance is life insurance with one insurance contract for an entire company. This could be a company of five people, or 5,000. It’s usually offered as part of an employee benefits package, which is why you are offered it during onboarding. Group life insurance rates are oftentimes less than an individual would pay on their own, and sometimes it is even at no cost to you, the employee.
If you are offered group life insurance, you should take it because the cost is so relatively low for the coverage—some might even offer to cover it as a part of your negotiation. The group life insurance coverage you are offered might be a flat amount, such as $50,000, or it could be equivalent to one or two times your salary. Each company sets up its group life insurance differently, so you’ll want to pay attention to what they’re offering you, including the terms of the policy and the timing.
Recommended coverage for life insurance
Your financial situation will dictate how much life insurance coverage you will need. A good rule of thumb is to have ten times your salary in the death benefit amount (aka the amount your beneficiaries would receive if you were to pass away unexpectedly). For example, if you make $75,000, your term life insurance death benefit should be $750,000. The idea is that this number should keep your family afloat should the unthinkable happen and you pass away unexpectedly.
Think of all the expenses that would add up if that happened: childcare costs, mortgage payments, and living expenses. It can be a large and overwhelming number, especially since you have expenses in the here and now. Think about your financial situation and what you might need to cover should you pass, and balance that with what you think you can afford to pay in monthly premiums to come up with a number that feels comfortable to you and your financial situation.
If you need help, try starting with Ladder’s life insurance calculator. It asks questions such as how much is left on your mortgage, any other debts, your annual income, and any dependents you might have.
Now, run that against what your employer is offering through group life insurance. Chances are, it’s not enough coverage based on the numbers you crunched above. There are a few ways you can go about getting more coverage, which we outline below.
Group life insurance terminology
To equip yourself with the right knowledge to know what you’re signing up for—or what might be lacking—there are a few words you’ll want to understand related to life insurance offerings.
Group life insurance
Group life insurance is a company-sponsored life insurance plan offered to a group of employees. The company uses “strength in numbers” to get the best possible rates as a group for you to get coverage. It might also be offered to you for free. The amounts are often set, such as at $50,000 or the equivalent of your yearly salary.
This is a word you might hear associated with group life insurance, and it’s an important one. Portability means the ability to take it with you. In many cases, the life insurance you choose while onboarding is not portable or has no portability—that means that once you leave your job, the coverage disappears.
Supplemental life insurance
Supplemental life insurance might also be offered to you, potentially through the same group life carrier or another one of your employer’s choosing. This is additional life insurance coverage that you can buy at the group rate, which might be significantly less than if you were to seek life insurance on your own. You might not have to take a medical exam to apply for supplemental life insurance, which makes it convenient and sometimes a strategic option for someone who might have health issues. However, supplemental life insurance offered through your company might not have portability and is often capped lower than the recommended amount for your financial circumstances, so you need to read the fine print.
In supplemental life insurance, you might hear the words “guaranteed issue.” This is the ceiling amount that the insurance company will offer with no medical exam. (You might be asked to fill out a health questionnaire instead.) The guaranteed issue amount might not be in line with your death benefit needs, so it’s important to get a good understanding of what is being offered.
Voluntary term life insurance
The easiest way to ensure that you have life insurance coverage at the amount you need is through voluntary life insurance, like Ladder offers. It’s portable, and you get locked in for a term of your choosing, whether it be 10 years or 30 years. Think of it as a one-and-done life insurance task: you apply, receive an offer, and pay your monthly premiums without having to worry about losing your coverage when you change jobs or not having adequate coverage. (At Ladder, you can “ladder” your coverage within our app, which is unique. You can decrease your coverage needs as you hit big financial milestones like paying off a mortgage.)
Ideally, you never have gaps in life insurance coverage, which is what makes voluntary term life insurance so easy—you can put it on autopilot for many years, in exchange for keeping your family’s financial situation in check.
Life insurance in an employer setting can be tricky to navigate, with all sorts of terminology, limits, and contingencies. If you have questions about term life insurance, our support team made up of non-commissioned agents is reachable by email, phone, or chat to help.
Ready to get started with a voluntary term policy? Use our 5-minute Life Insurance Calculator to see how much coverage you need. 221215-2642172