Get Life Insurance Outside of Your Job?

Many employers offer life insurance coverage as part of their employee benefits package, which can be a valuable perk. However, relying solely on your job’s life insurance policy might not provide the comprehensive coverage you need. In this post, we’ll explore the reasons why having a separate life insurance policy is essential for your financial well-being and peace of mind.

Younger Son: Bye! I’m going to work!

Me: Oh! What do you do at work?

YS: I smash moon eggs so the bugs don’t get my candy.

Runs off to other room and starts jumping.

YS: CRUNCH CRUNCH CRUNCH! I did it! We safe!

– Two year old securing our future and insuring candy needs are met 🥰

Let’s imagine a small business owner with 20 employees, and they offer each employee a life insurance policy for the amount of their annual salary. For employees who earn less than $50,000 and have a life insurance policy for that amount, employers can deduct the cost of the premiums as a business expense on their taxes.

For employees who earn more than $50,000 and are offered life insurance for the amount of their annual salary, they will have to pay income taxes on the premium coverage above $50,000. The premium for the first $50,000 is covered.

For this reason, many smaller business who offer life insurance as a perk, will offer a max of of $50,000. Any premiums paid out to an insurance company over that amount are not tax deductible and are instead an expense for the company. $50,000 may seem like a lot of money, but it doesn’t travel far down the road if you have kids, and it may have other limitations as well.

1. Understanding Employer-Provided Life Insurance

Employer-provided life insurance is typically a group life insurance policy offered to employees. While it can be a valuable benefit, it often has limitations:

• Coverage Limits: Employer-provided coverage usually has a limit, often equal to a multiple of your annual salary. This may not be sufficient to meet your family’s long-term financial needs.
• Portability: If you leave your job, you may lose your employer-provided life insurance or have the option to convert it to an individual policy, which can be more expensive.
• Lack of Customization: Group policies often offer limited customization options, meaning you might not be able to tailor the coverage to your specific needs.

2. Reasons for Having a Separate Life Insurance Policy

A. Financial Security for Your Loved Ones: One of the primary purposes of life insurance is to provide financial security to your family in the event of your passing. A separate policy ensures that your loved ones receive the necessary funds to cover living expenses, debts, education costs, and more, even if you change jobs or your employer alters its benefits.

B. Flexibility and Customization: Individual life insurance policies, such as term or permanent insurance, allow you to tailor coverage to your unique needs. You can choose the coverage amount, policy duration, and even add riders for specific situations, like critical illness or disability.

C. Portability: Your separate life insurance policy stays with you, regardless of your employment status. This portability ensures uninterrupted coverage, providing peace of mind during life’s transitions.

D. Supplemental Coverage: Depending on your financial responsibilities and goals, the coverage provided by your employer may be insufficient. A separate policy allows you to supplement your coverage to meet your family’s specific needs.

E. Estate Planning: Life insurance can play a crucial role in estate planning, helping to cover estate taxes, debts, and ensure an equitable distribution of assets among beneficiaries. An individual policy can be an essential tool in this process.

3. Assessing Your Needs

To determine the right amount of coverage and the type of policy you need, consider factors such as:

• Financial Obligations: Calculate your outstanding debts, including mortgages, loans, and credit card balances.
• Income Replacement: Determine how much income your family would need to maintain their standard of living.
• Long-Term Goals: Consider expenses like education costs for your children or financial support for aging parents.
• Funeral Expenses: Account for the costs associated with your final arrangements.

In addition to actually meeting life insurance needs, we like to focus on using permanent life insurance as a foundational wealth growth tool. Check out this page for to learn the basics of this concept.

While employer-provided life insurance is a valuable benefit, it’s generally not sufficient to meet all your financial protection needs. Having a separate life insurance policy ensures that you have comprehensive and customizable coverage that stays with you, providing financial security for your loved ones regardless of your employment situation. Take the time to assess your coverage requirements and explore individual policies with an experienced life insurance agent to ensure you’re adequately protected for the long term.

Older son “going to work” instead of taking a nap