I speak to people every day about their insurance protection and one of the things I hear a lot is, "Oh, I'm all set for life insurance. I get it through my employer." I'm always pleased to hear that they have some protection in place, but most people are shocked to learn that the coverage they get at work is often not enough and that they lose their coverage the minute they change jobs.
Employer sponsored life insurance is great; it's cheap, it's almost always guaranteed issue, and it's there for your family if the unthinkable happens. Take advantage of it if it's offered. The major drawbacks to it, however, are that it's most often based on your salary (usually a multiple of 1 or 2x your annual income), and that it isn't portable -- meaning, you don't actually own it and you lose it when you leave your job.
Whenever someone tells me they don't need life insurance because they have it at work, I ask them to take out a business card and write the amount of their death benefit on the back of it. Then I tell them to draw a line through the last 4 digits. For example, if someone makes $60,000 a year and their employer-sponsored life insurance provides a $120,000 death benefit (2x their salary), they write $120,000 on the back of the card and cross out the last 4 zeroes. What they're left with is $12.
So what's the significance of that twelve bucks?
Put simply, that's the amount of daily income their beneficiary can expect to receive if they invest the proceeds from the death benefit and earn 3.75% on it after taxes. $12 per day is roughly $360 per month or $4,500 per year. That's a far cry from the $5,000 per month that was coming in while the person was still alive. Most folks wouldn't dream of putting the people they love through that kind of hardship.
Here's the part where you pull out your business card and write the amount of your death benefit on the back of it and cross out the last 4 digits. Is the number you're left with enough on a daily basis to replace your income for those you love most?
The other big issue with employer-sponsored life insurance is its lack of portability. These days people are staying with their employer for an average of four years before moving to a new company. As soon as they leave, they lose their life insurance. Suppose the job they're going to doesn't offer it. Worse still, imagine if they've become uninsurable in the meantime.
The good news is that owning your own life insurance is easy and affordable. Right now, a healthy 35-year old can get $1,000,000 in coverage for less than a dollar a day*. I think the reason more people don't do it is that they're just not aware of how inexpensive the protection is.
One quick note about the Accidental Death & Dismemberment (AD&D) insurance which might be offered by your employer: it's cheap and you should sign up for it, but it's not life insurance. In order for your beneficiaries to be paid you need to die in an accident, and some policies even stipulate that it must be a work related accident. If your employer offers both life and AD&D insurance, they should be clearly separate policies.
Life insurance doesn't have to be complicated. For the vast majority of my clients, its main purpose is to replace their income in the event of their death, so their loved ones don't have to endure a financial hardship on top of the emotional devastation. While employer provided life insurance is a great benefit, it's often not enough to cover more than a year or two of expenses for those left behind. Most of us want more for the ones we love.
If you've written down your death benefit and crossed out the last four digits and found that what's left isn't adequate, get in touch with me and we'll fix that. It's literally trading pennies for dollars, and it can make all the difference in the world to your loved ones when they're facing the worst day of their lives.
*Female, 35, 10-year Level Convertible Term, Select Preferred Rating ($28/mo)
Dave Guilford is a Financial Services Professional with New York Life providing time-challenged professionals with the strategies to help turn their hard-earned incomes into well-deserved outcomes.
You can reach Dave anytime at (504) 915-3403 or at email@example.com.