Part of life’s to-do list is planning for major milestones. You save money for a new home, explore your health insurance coverage when expecting a baby, and plan for retirement.
While it’s fun to look forward to these major life events and know you’ll reap the benefits of planning ahead, it’s also important to plan for when you’ll be gone. Ensuring you have enough Life insurance can be a critical element of your financial well-being as you make those plans.
The end of life might not be something you like to think about, but consider reframing it: Treat getting Life insurance just like you prepare for any other major life event.
The hard reality is that death can be a financial blow to the loved ones left behind.
Think About the Costs
- The average cost of a funeral is between $8,000 and $10,000
- End-of-life medical expenses can run as high as $20,000
- There’s also debt to consider: Surveys have found that almost three out of four Americans are likely to leave behind debt averaging about $61,554 in outstanding bills for their family members to deal with
A Life insurance policy can help those you leave behind pay for the expenses listed above. With the right coverage, you can have peace of mind knowing you’ve helped your loved ones pay for final expenses.
This article can help you understand your Term Life insurance options and make the choice that fits your situation.
How Life Insurance Works
With Life insurance, you pay regular premiums directly to an insurer or as provided by your employer. In return, the insurance company makes a cash payment to your beneficiary or beneficiaries if you pass away.
This money can be used to cover things like funeral costs, college tuition, monthly bills, and other day-to-day living expenses. With everything your family may have to deal with at the end of your life, financial insecurity can be one less thing they will have to worry about.
There are different kinds of Life insurance policies, and it’s important to understand them. Two common options are:
- Employer-sponsored Term Life insurance (Life insurance through work)
- Private individual Term Life insurance (Life insurance you purchase directly from an insurer)
Term Life Insurance
You’ll be covered for a fixed period, usually 10, 20, or 30 years. If through your employer, it’s typically only while you are employed with them, but still there are options we will discuss later. Term Life offers a set amount like $25,000 or $50,000 or more commonly, a multiple of your base salary.
Basic Life Insurance Through Your Employer
A basic Life insurance policy through your employer may be included in your employee benefits package at no cost to you. These policies typically offer modest coverage.
There are many resources and calculators to help you estimate how much Life insurance your family may need. You may find the basic coverage your employer provides isn’t enough to provide for your family. If that’s the case, you have several options to top-off your coverage.
Employer-provided Life Insurance Plans
- In 2019, 82% of employers offered company-paid Group Life insurance
- 76% offered Supplemental Life insurance for employees
- 69% offered Life insurance for dependents
- Around 81% of employees selected Life insurance as a benefit during the 2020 open enrollment
- of those who did, 21% said it was a new selection this year.
With an employer-provided Life insurance plan, you can often purchase Supplemental Group Life insurance through your employer’s policy. That means the employer purchases the Supplemental coverage through an insurance company and passes its group discount on to employees. You have the option of selecting the amount of coverage based on how much money your family would need if anything happened to you.
There are many benefits to purchasing Supplemental coverage like Life insurance through work.
- Enrollment is simple, and there are a few scenarios when you can submit the paperwork, they include:
- when you’re hired
- during your employer’s open enrollment
- during a special enrollment period
- if you are experiencing a qualifying life event
- Your HR department or employee resources are usually available to help with forms or answer questions.
- It can also provide support when you or your loved ones need it most.
These value-added services may include:
- Resources to help with confusing paperwork
- Creating a simple last will and testament online
- Tools to help pre-plan and plan out funeral arrangements
- Travel assistance & ID theft protection services
- Payments for supplemental life are automatically deducted from your paycheck so no missed premium payments
- You get the benefit of negotiated group rates. That means that often your employer has negotiated a discounted rate and passes the savings on to the employee — like buying in bulk.
- Your premiums are usually not tied to your health, so you can qualify for a policy and pay the same rates as everyone else, even if you have underlying health conditions.
- These plans may also include options to buy insurance for a spouse or partner (core/basic coverage usually insures spouse and children).
Downsides include the fact that your policy is tied to your employment term. This means coverage is usually for the time you’re employed with them unless you choose to port or convert your policy when you leave that employer.
There may also be a start-up period, meaning, once you’re hired, there may be a period (typically 90 days) until you are eligible for benefits.
You may also have fewer choices with employer-provided Life insurance plans; you’re limited to purchasing insurance through the provider selected by your employer.
Individual Term Policies
With this type of policy, you buy a separate term policy to supplement your employer-provided coverage through an outside insurer (private individual plans).
With a private individual policy, you can shop around to compare options with different insurance providers. This means you might be able to find policies that are cheaper or offer more coverage than Supplemental Life insurance plans available through work.
You also own your policy. You keep it even if you leave your employer, ensuring you don’t have any gaps in your coverage.
However, though you may be able to find a private individual policy at a lower cost than that offered by your employer, you don’t have the advantage of a group discount.
Many Term Life insurance policies reset after 10 years, shifting to higher premiums as you get older.
Additionally, you might have a harder time getting coverage if you have an underlying medical condition since these policies usually require a medical exam. An underlying condition usually results in higher premiums.
The bottom line is that Life insurance can be an important financial safety net for your loved ones. It’s good to think about this coverage as you increase responsibilities in life.
At the very least, learn about the employer-provided Life insurance plan and its value-added services included in your benefits package. Don’t forget to assign your beneficiary or beneficiaries.
Next step will be to use an insurance coverage calculator and determine how much Life insurance you may actually need to learn whether you should purchase supplemental coverage.
Need more coverage? Consider purchasing a supplemental policy through your employer or through a private insurer. In the end, you choose the right amount of Life insurance to help ensure your family is protected financially when they need it most.
Comments and questions on this topic are welcomed in the section below.
This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.