There are many benefits that come with permanent, full-time employment. In many cases, one of those benefits is a workplace life insurance plan, which protects you as an employee in case of death within the duration of your employment.
While workplace life insurance plans might make you feel like your loved ones are being properly protected, this is rarely the case.
That’s why during your working years, it’s important to also have a personal life insurance plan in place to complement or replace your workplace life insurance plan.
We spoke to Shawn Lorenzen, Senior Financial Services Representative at Foresters Financial, and she was happy to help explain why.
Term vs. Whole Life: Workplace insurance isn’t portable
In the insurance world, “term” refers to a type of life insurance that will cover you during a set timespan (ex. 10 or 20 years). On the other hand, “whole life” insurance stays in place until the time of your death and it also builds cash value over time.
“A personal life insurance plan outside of work is important because most workplace insurance is term coverage,” says Shawn. “This means that once you leave your current employer, you will also be leaving your insurance coverage in most cases.”
This is because your life insurance plan at work likely is not “portable”, meaning you can’t bring it with you when you leave your job.
Your workplace life insurance may not secure your family’s future
Basic life insurance from your employer can come at little to no cost. If that sounds too good to be true, it’s probably because it is. As part of the group coverage that comes with a workplace insurance plan, the death benefit received upon death – probably won’t be enough to support your family’s future needs.
Group life policies, like the one you probably have through your employer, are a one-size-fits-all solution with a death benefit that is usually fixed at a certain amount or equals somewhere between one and three years of your annual salary.
This amount will help your family cover immediate living expenses in the event of your death, but it is usually not enough to pay off a mortgage or provide an education for your children.
Look into what your death benefit from your workplace would be, then determine your family’s needs and decide whether or not it would be worthwhile to purchase additional life insurance.
You can lock in lower premiums with personal life insurance
When you purchase a life insurance plan, the premiums tend to be lower the younger and healthier you are. But when you rely on your workplace term plan, you might miss out on the best years to lock in lower premiums.
Once you are no longer employed and your term coverage runs out, you may not be as healthy as you were during your working years, and the premiums you could face later in life might be significantly higher.
Estate planning: The right insurance policy will help you pass wealth down to your family
Insurance works as an income replacement in your earlier years, but in later years it also becomes a major estate planning tool.
As you get older and your estate grows, insurance becomes a crucial part of estate planning. Shawn notes that insurance is the only asset that transfers tax-free, so it’s an important part of wealth transfer later in life to your children or other loved ones.
Insurance will help you plan for final arrangements
It’s not likely that you will pass away while you’re young and still healthy enough to work. As such, it’s important to not only be covered during those working years, but to also have coverage later in life to ensure that your final arrangements are covered.
This allows you to plan ahead and it will also ease the burden on your loved ones.
“You’ll always have final expenses, and there’s nothing worse than waiting for an inheritance to pay for a funeral for your loved one,” says Shawn.
As mentioned earlier, a term policy only covers you during a set term – in this case your term of employment. To account for final arrangements, you will likely need a personal policy outside of your workplace insurance plan.
It’s important to have insurance outside of employment for full, long-term protection for your family. When it comes to deciding between workplace insurance and personal insurance, Shawn recommends keeping both.
Be sure to take a close look at your workplace insurance policy to ensure that it meets your needs. If it does not, speak to an insurance agent or advisor to learn more about getting your own personal life insurance policy.
Regardless of the type of insurance you choose, incorporating life insurance into your overall financial portfolio is an effective way to build wealth and make sure your loved ones are taken care of over the long term.