When most people think about life insurance, they think of a policy that will pay out a large sum of money to their beneficiaries in the event of their death. While this is certainly one type of life policy, there are several different types available on the market today. In this blog post, we will discuss the basics of life insurance policies: term, whole, universal, burial, and final expense.
Life Insurance by Definition
Life insurance is one of the most popular benefits companies offer to their employees. While there are several options available on the market, the most common options either require the employees to pay little or nothing at all. Additionally, a plan is typically a fixed dollar amount or a multiple of a person’s base salary. For example, an employer might offer each employee a $100,000 life policy or two times the person’s base annual salary.
Different Types
There are two main types of insurance. The most popular type of policy for employer-sponsored life insurance programs is called term life. Term covers a person for a specific term. In employer-sponsored programs, the term is limited to the time that a person works for a company. Employer-sponsored term insurance pays a particular sum, or death benefit, to the employee’s beneficiaries if he or she dies while covered by the term.
The other type is called whole life. Whole life provides protection for the insured person’s entire life. Because most people do not work for a company for their entire careers, most companies will not provide whole life to their employees. Some pension plans might offer life to former employees, but as pensions go the way of the dinosaur, so do employers that offer whole life to their employees.
Costs of Plans
The employer typically covers the cost of basic life insurance. If an employee does have to pay for the cost of their life insurance, costs are generally meager due to the insurance being part of a group policy.
Additionally, some employers offer their employees the option of paying for additional life insurance coverage. Typically for as little as a few dollars per month, employees can elect to pay for incremental life insurance additions.
Advantages
Employer-provided life gives employees access to life insurance who wouldn’t otherwise have it. It also provides coverage to employees who have private life insurance policies but may need extra coverage. Some of the advantages of basic life insurance include:
- Low to no cost. Employer-sponsored basic life comes at little to no cost to employees.
- Protects people who aren’t eligible for private life insurance. If you can’t get private life insurance due to your health, you may be able to get life through your employer’s group life policy.
- Tax benefits. Employees covered by an employee-sponsored policy only have to pay federal taxes on any life insurance coverage payment that exceeds $50,000 in benefits.
Disadvantages
Although employer-sponsored basic life insurance can be advantageous for many people, there are some disadvantages as well. Some disadvantages include:
- If you leave the company, you lose coverage. Most employer-sponsored basic life insurance coverage is term life. Therefore, when you leave your company, you will no longer have life insurance coverage for retirement or a new job.
- One size doesn’t fit all. Each employee will have different needs when it comes to life insurance. Therefore, employer-sponsored life might be nice to have but may not be a match for everyone’s needs.
- It can be expensive. Group insurance has increased in cost over the years. Therefore, some employers might pass some of the costs on to their employees.
Is The Basic Coverage Enough
Everyone has different needs when it comes to a life policies. Those different needs can be seen in the dollar value that’s needed and the specific type of policy that’s needed. Most people need far more than the $50,000 to $100,000 that many companies offer. It’s recommended that you take the time to calculate your need for life insurance. Figuring your coverage need will help ensure you have enough.
To calculate your need for coverage, consider how long you’d like to support your beneficiaries. You may also want to consider any upfront costs they may have without your income. While personal life insurance will be an out-of-pocket expense, it is often more comprehensive than basic life.
Each individual has unique needs when it comes to life insurance. There’s not one specific type that’s right for everyone. Be sure you understand the various types of policies that are available.
Some Tips
- Partnering with a insurance advisor to determine the right amount of coverage is a smart move. Finding a financial advisor doesn’t have to be hard. Asset’s matching tool can connect you with several financial advisors in your area in minutes. If you’re ready, call 800-339-4112.
- Usually, you can calculate the right amount of coverage by factoring in your income. Depending on the other resources you have to give your dependents after your passing, you may not need to replace 100% of your income. Also, one of the key decisions you’ll need to make is whether you should have permanent life or term life coverage.
In Closing
Employer-sponsored life insurance can be a great benefit, but it’s important to understand that it might not be enough. Make sure you take the time to calculate your need for life coverage and find the right policy for you. Partnering with a insurance advisor is a smart move to ensure you have the coverage you need. If you’re ready, call 800-339-4112.