Is Employer-Provided Life Insurance Enough?

Group Insurance is when an organization insures a group of people under a single life insurance policy, usually life insurance or health insurance. Term insurance is the simplest form of life insurance, where the employee dies suddenly, the nominee receives the death benefit. The amount of money paid is equal to the amount of the employee’s annual salary or it depends on the name of the employee, and the employer usually pays most or all of the money.

In line with the company’s concern for the health of its employees and their families, the company offers Group Life Insurance as part of the employee package. It is undoubtedly a tempting idea. However, it is also wise to understand the benefits of employer life insurance.

Some of the benefits that Group Insurance offers, are:

For young people just starting their careers, insurance is the last thing on their mind. Financial independence happiness takes precedence over building a secure society. Life insurance will provide your dependents with the protection they need, in case of any unexpected calamity.

Since your employer pays you the money, you can use the money for other important things. Group insurance is good for people who don’t have money or who need to take out life insurance.

As your needs change, you can easily increase your income, by doubling your annual salary, by paying more than what your employer pays. Many employers offer this option.

  • Benefits of Riding on Additional Safety

If your employer allows it, you can purchase and add riders to your basic policy. Riders are optional, additional terms that provide additional protection against future risks such as critical/terminal illness, accidental death, and total/partial disability.

The death benefit is tax free.

When an employee dies while still with the organization, the insurance pays a death benefit to the survivor.

Let’s look at an example of how a group cover can help.

Mohsin Siddique, who was the sole breadwinner in his family, was only two years old when he lost his life while traveling in a typhoon. He was paid under a group life policy by his employer in which the death benefit was paid to his mother. This helped him continue to pay the bills and thus ensure that there is no financial crisis during this difficult time.

Is Group Insurance Enough?

Indeed—paying your employer to pay for insurance is a blessing. However, Group Insurance works for a certain period of time. You need to check what you need to be able to connect the needs that are not covered (if any):

  • This Policy May Not Be Sufficient To Meet All Your Needs

Employers often provide basic cover, which can work well for people without positions. However, if you have dependents such as elderly parents, an unemployed spouse, and/or children, the death benefit may not be sufficient to cover all of their needs. Remember, inflation only goes up. Second, death benefits that replace wages do not take into account concurrent earnings, such as bonuses, commissions, and other benefits that the employee may have earned during employment.

  • Permanent hire is ideal

In order for an employee to be eligible for public assistance, they must be permanently employed. This means that if you are a renter or a part-time employee, you will not be eligible for benefits.

  • Cover Ends When You Change Jobs

When you change or lose your job, you also lose your employer-provided life insurance. This means that until you find a job, you will be without insurance coverage. There is no guarantee that another employer will provide you with insurance and even if they do, they may not offer you the same cover, as it depends on your age and health.

Employer-provided insurance often includes only the basics, which may not cover your needs. They do not include additional riders, which will need to be purchased by you.

The following cases clearly illustrate the aforementioned disadvantages:

  • Case 1: Suvarna Prabhu, the central executive, was single when he joined his organization. In the following years, he married and had two children. Her parents were also retired and since Suvarna was their only child, the responsibility of taking care of them fell on her. Now imagine if anything were to happen to him, would the death benefit be enough to pay for his children’s education and wedding expenses and the rising medical bills of his parents?
  • Case 2: After Covid-19, Surabhi Shah’s company had to downsize and she was made part-time from full-time. His insurance stopped immediately and getting an individual policy was expensive because he was in his 40s and had to pay more.

One Size Doesn’t Fit All

Even if your company covers you, it’s always a good idea to research other insurance providers and purchase an additional policy that meets your current and future needs. If you buy a supplemental policy while you are young and healthy, the premiums are lower. Therefore, buying an individual policy will be cheaper and give you better coverage than what your employer offers.

Insurance is for long term. It should take into account your financial needs (even after retirement). Life insurance offers many options, and you will find a policy that meets your needs. There are five main types of insurance that can meet your needs:

1. Term Plan

Term insurance is a risk plan that protects your future income and your family’s income. In case of calamity, accident, disease, or natural death, the plan is taken for a fixed period from 10 to 40 years. The amount is fixed and must be paid for the plan to be valid. If the policyholder dies before the policy expires, the nominee receives the death benefit.

2. Life Plan

Whole life insurance gives you a life expectancy of 99 years and provides you with a death benefit, a survivorship benefit, and a maturity benefit. This is great for retirement planning.

3. Unit-Linked Insurance Plan (ULIP)

ULIPs offer customizable options that can be adjusted according to your needs and priorities. A ULIP offers a dual benefit of investment (stocks, bonds, or both) and insurance. Although ULIP can be a great wealth generator, the returns are linked to the market, which makes them subject to market risk.

4. System of Guidance

Endowment offers a combination of insurance benefits and savings, along with a portion of guaranteed returns. It is good if you want to create an organization for future needs. If the insured survives the policy period, the maturity amount is paid. If not, the beneficiary receives the guaranteed amount.

5. Retirement plan

A retirement plan or pension plan provides you with the dual benefits of cash and insurance and guarantees you a steady income during your retirement years. Whole life insurance is a type of retirement insurance where the earlier you invest, the better. It will help you to build a large corpus due to the combination.

Down Under

Employer-provided insurance along with a personal policy can help you avoid unexpected surprises and always protect you from risk. However, it is important to purchase additional life insurance that suits your needs. Although an employer’s group life insurance cover will provide you with protection, relying on it alone can be dangerous.