⚠️ The Hidden Risk
Relying solely on employer life insurance is one of the biggest financial mistakes Americans make. Here's why:
Typical Employer Coverage
1-2x Salary
Often capped at $50K-$100K
Recommended Coverage
10-12x Salary
Or DIME calculation
Employer vs Individual: Side-by-Side
| Factor | Employer Coverage | Individual Policy |
|---|---|---|
| Portability | ❌ Lose when you leave job | ✓ Yours forever |
| Coverage Amount | Usually 1-2x salary | You choose (10-12x) |
| Cost | Often free (basic) | You pay premiums |
| Medical Exam | Usually none | Usually required |
| Guaranteed Renewable | Only while employed | For policy term |
| Rates | May increase with age | Locked for term |
| Beneficiary Choice | Your choice | Your choice |
5 Problems with Relying on Employer Coverage Only
1. You Lose It When You Leave
Quit, get fired, get laid off, or retire—your coverage ends. If you've developed health issues, you may not qualify for new insurance.
2. Coverage Is Too Low
1-2x salary doesn't replace 10-20 years of income. If you make $80K, employer's $80K-$160K coverage leaves your family seriously underfunded.
3. Conversion Options Are Expensive
You can often convert group coverage to individual, but rates are typically 3-5x higher than buying individual directly—and it's usually whole life only.
4. Health Changes Trap You
If you get sick while employed, you might become uninsurable individually. Lock in coverage while healthy, not when you need it.
5. Your Employer Controls It
Your employer can change or cancel the benefit anytime. It's their policy, not yours.
The Smart Approach
âś“ Use Employer Coverage as a Supplement, Not Foundation
- 1. Calculate your true need: Use DIME method or 10-12x salary rule
- 2. Buy individual policy first: Get the majority of coverage through your own term policy
- 3. Take free employer coverage: Add it on top as bonus protection
- 4. Consider supplemental: If employer offers additional buy-up at group rates, may be worth it
Example Strategy:
Need: $800K total | Employer free: $100K | Buy individual: $700K term policy
FAQs
Should I buy supplemental life insurance through my employer?
Maybe. Employer supplemental rates are often competitive when young but may increase with age. Compare to individual term rates. Key disadvantage: still tied to employment. For most people, individual term offers better long-term value.
What happens to my employer coverage when I retire?
Usually it ends. Some employers offer reduced retiree benefits (rare). You may have a conversion option, but converted policies are expensive. This is exactly why you need individual coverage established before retirement.
The Bottom Line
Employer life insurance is a nice perk, but it's not a plan. It's usually too little, and you lose it if you change jobs, get sick, or retire. Buy your own individual term policy to cover your real needs, and treat employer coverage as bonus protection on top.