Employer provided benefits, though well-intentioned, can nonetheless be a minefield for misinterpretation. Take life insurance, for example. It's a popular employer-provided perk that is lulling workers into a false sense of security. A new survey from LIMRA, the research engine for the life insurance industry, says 108 million Americans have life insurance through a group plan while 102 million have coverage through an individual plan they purchased.
In most instances, workers merely accept the free life insurance benefit without thinking it through. Nothing wrong with free, but free isn't necessarily enough.
Anita Potter, a workplace benefits specialist at LIMRA, says smaller firms tend to offer a flat dollar amount, maybe $25,000 to $50,000. At firms with at least 100 employees the norm is typically a multiple of salary; one times salary is common, though sometimes generous employers offer up a two times or three times free life insurance benefit.
If you are just out of college and don't have debts or dependents that might be enough but most times it's just not enough. But if you've got other people dependent on your income, such as a spouse, parents or siblings, you likely will want a policy that also provides supplemental income.
The average mortgage balance is around $110,000. Private student loans which aren't forgiven when the borrower dies, can be a burden your heirs will have to deal with. And if you have children he cost of getting them through their schooling is going to be another multiple of your salary.
That's why a basic starting point for protecting a household is typically in the vicinity of 10 times salary. Even if your employer offers the ability to purchase additional coverage through the group plan (and only a minority of employees choose that) that often has a limit of a few times your salary.
Chances are you need to venture into the individual market and buy a term life insurance policy. If you're in good health and on the younger end of the age curve, the individual market will likely be less expensive than the premium for buying more coverage through the group plan at work.
A term policy pays out a death benefit to your beneficiaries if you die during the policy term, which can be 10, 20 or 30 years. That's likely all you need, given that your big ticket expenses have a finite shelf life.
For example, the mortgage will be paid off within 30 years, and the kids will be young, independent adults (hopefully in less than 30 years). And if you outlive your policy, chances are in the intervening 10, 20 or 30 years you've managed to pay off the mortgage and build up assets, such as retirement accounts and other savings.
Term life insurance is much less expensive than that other breed of coverage: permanent life insurance, which comes in a variety of flavors such as whole life and universal life. Most people are surprised at how inexpensive term life insurance is.
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