Your Group Insurance Is Inadequate

You've done it — you've finally landed a job that offers amazing benefits such as free life insurance. While employer-offered life insurance (also called group life insurance) is worthwhile, it shouldn't be your only source of insurance.

How Do I Get Group Life Insurance?

Many employers will offer a free level of life insurance for employees. Depending on your place of work, this can cover anywhere from $25,000 to your base pay. Since this is a free option, all employees should sign up for the benefit. It's free money if something were to happen to you. However, don't let that be your only coverage. 

Is Group Life Insurance Enough?

If you are single, a $25K —$50K check sounds like a nice chunk of change for your parents or other loved ones you leave behind. However, in most cases — yes, even for single people — it's simply not enough. Final expenses can be greater than you think. Funerals can range in price, but a recent survey by the National Funeral Directors Association found a median price of $7K.

Furthermore, if your private student loans, mortgage, or car loans have a co-signer, then that co-signer will be stuck with your debt after you die. To avoid this, you can either remove co-signers from loans through refinancing, or purchase term life insurance that will cover the cost of your remaining debt.

For healthy, young individuals that do not need much coverage, term life insurance rates are very affordable, with some policies costing less than $20 a month. But for individuals who are married and/or have children, you'll likely need more coverage. To calculate how much coverage you need, add up the following:

• Funeral cost;  
• Cost of paying off any debt not forgiven upon death;  
• Time you want your loved ones to have income and not worry about work — for example, even if your spouse works full-time in a successful career, they might need several months to grieve your loss;  
• Future college costs or other child-rearing expenses.

For many families, the total will be around seven to 10 times your annual paycheck.

Can I Get Supplemental Life Insurance Through an Employer?

Many employers will offer supplemental life insurance for purchase. Since you are purchasing the policy through your employer, it could be slightly cheaper than purchasing individual life insurance. However, your company technically owns the policy. Therefore, if you quit or are fired, your group life is gone, too. Some employers will give you the option to continue carrying the policy after you leave, but it will be at a higher price.

Individual Life Insurance Versus Group Life Insurance

While signing up for free group life insurance is a must, it is much better to sign up for supplemental term life insurance individually. The policy will stay with you even if you move jobs. Furthermore, you can lock in a low premium now when you are still young and healthy.

Say you were to secure a low-cost policy with your employer's group life insurance at the young age of 25. Your rates should be quite low. Now fast forward eight years. You want to quit your job and have your own term life insurance policy. You will still get a great rate because you are under 40, but your monthly premium will be more at 33 than it was at 25.

To sum it all up, cash in on your employer's free group life insurance perk, but also secure term life insurance when you are still young. This will allow you to lock in the best rate possible.