Life insurance is something important to have, especially if you have a family that depends on your income for their daily living expenses. How much life insurance you should carry depends on your income level, your standard of living, your total debts, the number of children you have that you plan to have enrolled in higher education and more.
Employer-Sponsored Life Insurance
Many employers offer their employees basic life insurance in the form of group term coverage, at little or no cost to the employee, as an employee benefit. In many cases, the amount of coverage allowed is insufficient to cover your family’s life insurance needs and an additional individual policy will be needed to provide a more appropriate amount of protection. It’s not uncommon for the death benefit on one of these group term life policies to equal only about the amount of a single year of your employment income. Many financial experts, however, suggest that you consider carrying 10 to 15 times your yearly income in life insurance protection. They recommend that you carry, at a minimum, an amount capable of paying for:
- All outstanding debts, including car loans, home mortgage(s), outstanding student loans plus all other financial obligations
- Funeral and burial costs
- Creating financial security for your loved ones by replacing lost income for your family for as many years as the kids will still be at home
- Estate taxes
- Future college educations for your children
- Charitable gifts
- Any wealth you wish to transfer upon your death
Shortcomings With Employer-Sponsored Life Insurance
Besides the relatively low face value of most employer-sponsored life insurance policies, these types of coverage may have several other problems. For example:
- Your employer-sponsored life insurance could be lost if you change jobs, get laid off or are reduced to part-time status
- If you plan to add more coverage through the same company providing your employer-sponsored insurance policy, this may not be their cheapest option, especially if you’re young and healthy
- If health problems cause you to leave your job you may lose your life insurance when it’s most important to be covered. Replacing your protection with failing health would likely be problematic.
Employer-sponsored life insurance is likely not good enough unless you’re single and have no real outstanding debt, in which case you likely don’t even need life insurance. Free insurance shouldn’t be declined, but back it up with your own private plan.