If your employer is sending you notices regarding open enrollment, you have just a small window of time to review your existing benefits package and identify any needed changes. An important topic to focus on when it comes to open enrollment is group life insurance.
Group Life Insurance: The Basics
Many employers generously offer life insurance to employees as a perk. Typically, there is a basic group life benefit which is often free and guaranteed for just about every employee. The coverage is relatively small, perhaps equal to your base salary. Opting for this basic group life coverage should be a no-brainer.
Some employers offer additional life insurance for a price, known as supplemental group life coverage. Supplemental coverage is typically a multiple of your salary (2x, 3x, etc.) and likely comes with a required medical exam. The rates offered through your employer can be very affordable versus the broader marketplace.
Understanding the Drawbacks
One of the arguments against supplemental group life insurance is that coverage may end if you leave your company. There is a chance that your policy is portable, meaning that you can take it with you when you leave. However, because life insurance gets more expensive as you get older, the cost to sign up for additional outside coverage could be significantly higher than what you are paying while an employed member of the group.
Another issue with relying on supplemental group life insurance is that your next employer might not have the same benefits package. If this is the case, you run the risk of leaving your beneficiaries out in the cold should something tragic happen to you. Given such cases, we recommend that you at least consider adding an individual term life insurance policy. This type of life insurance is affordable (especially if you buy early in your life and are healthy).
Individual Life Insurance: How Much?
The security and peace of mind individual life insurance can provide you and your beneficiaries are worth considering, even if it costs slightly more than a supplemental group life option.
Deciding how much coverage to have is crucial not just because it is financial protection for your loved ones. The level of coverage also impacts how much you are spending. When identifying what your “number” needs to be, think about your income and expenses:
- Does your partner make enough income to cover your mortgage and sustain their living expenses should something happen to you?
- If you have children, would you like to fund their education down the road?
- If you are single, are there any dependents or others you would like to support financially?
In the event of a worst-case scenario, your beneficiaries will be able to use a life insurance payout to fund education, pay off the mortgage, sustain a comfortable lifestyle, etc. Talking this decision through with your financial planner or life insurance agent is a conversation to prioritize.
Carrying life insurance coverage is something we recommend for most of the individuals and families we work with every day. Determining how much coverage you need, and planning for the premium costs, is crucial to protecting your loved ones and ensuring the success of your financial plan down the road.
Grant Lyon, CFP® serves as an advisor at Brighton Jones.
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