Free Life Insurance: What Your Employer's Policy Means

Free life insurance, or life insurance that your employer provides at no cost to you, is worth paying attention to. You should know exactly what is covered and what is not in order to determine if the coverage is sufficient should something happen to you.

Part of Your Benefits Package

Most employer-provided life insurance is a part of your overall benefits package. It’s usually term insurance and only lasts as long as you remain with the company. Employers carry a master plan (also called master contract) as part of group insurance from an insurance carrier. It often is free to the employee, meaning you don’t have to pay the premiums on the insurance, but in the instances where it is not completely free, you do benefit from the reduced rates afforded by the employer’s group life insurance master contract.

No Health Screenings

Another plus to an employer-paid life insurance policy is that there are no screenings to determine your health status. Even employees with high-risk conditions are covered under these free life insurance policies, coverage they either may not be able to get on their own or that they’d have to pay high premiums for.

Free Life Insurance May Not Provide Sufficient Coverage

At coverage levels generally one to two times your annual salary, the life insurance you get free through your employer may not be enough to cover your family’s needs when you die. What good is a check for $10,000 to $20,000 – even $50,000 - if you have young children that will require care for years to come? What about your spouse? Any special needs children or other circumstances. Do you own a home? Whatever you get for free from your employer most likely won’t even come close to meeting your coverage needs.

Many financial planners recommend that you buy enough additional life insurance so that you have enough coverage to replace seven to ten times your annual salary. Even if your employer offers additional coverage that you pay for, it is usually a better idea to buy it on the outside. Why? Since employer-offered insurance has to cover any employee that wants it, there are a lot of health risks and conditions that the insurance companies know will be part of the package – and they raise the rates accordingly. Some experts say you can save 30 to 50 percent by buying your own additional life insurance policy on the outside. Still, it’s always good to look at what your company has to offer and then also shop around.

It May Not Be Portable

Suppose you leave your employer. Your free life insurance that was provided to you through your employer may not be portable. Once you leave the company, your coverage ends. You have no guarantee that your new employer will even offer free life insurance, especially with companies now trimming benefits drastically. In some states, California, for instance, there are no laws that require companies to provide benefits to employees. If you’re thinking about jumping ship or facing termination due to downsizing, make sure your new employer provides some type of life insurance benefit – free or otherwise.

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