Is Free Life Insurance Through Your Company Enough?

Employers often provide one to two times an employee’s annual salary as part of their benefits package.  How can this be bad?  Well, it’s not bad…it just may be insufficient, as it may not provide all the coverage you actually need.

But how do you know how much coverage you DO need? Why wouldn’t one whole year’s salary be enough, especially if you’re a young, single person? And how do you figure that out?  Doesn’t that involve….math?

Do I even need life insurance?

As finance expert Suze Orman has said, “If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.”  Even if you have no dependents, if someone else would be saddled with your debt (hello, student loans!) should something happen to you, you should consider life insurance.

There are plenty of other reasons for life insurance: to pay off credit cards and other debt, cover final expenses, or to fund charitable giving.

Ok, but how much do *I* need?

This is where the math comes in…or not.  There are many free online tools to help figure out how much life insurance you need.  We have provided one here.

Other experts offer basic formulas that don’t require advanced calculus. For example, one recommends multiplying your salary by 20 to calculate the amount of coverage you need.  This approach is certainly easy, but not terribly precise.

What exactly am I getting for free?

Take a look at exactly what coverage your company provides. Maybe it is sufficient.  But if not, consider purchasing supplemental insurance, either through your employer’s program or elsewhere. If you add coverage through your company, consider the cost.  Are rates comparable to what you can buy elsewhere?

Finally, be sure to find out what happens if you leave your job. Does the policy terminate?  You may find that the life insurance your employer offers is fine, but if not, it may be time to go out and get yourself a better pair of sunglasses.