Is Your Employer-Issued Insurance Policy Enough? Here’s How to Know

There’s a lot of new info to take in when you get a new job—learning your new responsibilities, meeting your new team and understanding your benefits. Life insurance is one common benefit providers offer, but many times, the coverage they provide doesn’t meet all of your coverage needs.

This is a common blind spot for many people as they plan. In many cases, employer-issued life insurance is just a starting point, not a complete solution. Though it may not feel like the right time to dig in on your life insurance needs as you’re starting a new job, reviewing your coverage as soon as possible can ensure your loved ones are protected and your plan stays track.

We’ll help you understand how life insurance works, how to tell whether the coverage you have through work is enough and what your options are if it’s not.

How does life insurance through an employer work?

Employer-sponsored life insurance, also known as “group life insurance,” is often included in your benefits package. In many cases, your employer pays the full cost of a basic term policy, so you don’t need to contribute. You may sometimes hear it referred to as “company-paid life insurance.”

Coverage amounts are usually tied to your salary, often equal to one or two times your annual pay. Some employers also allow you to purchase additional coverage, known as supplemental insurance or voluntary life insurance, for yourself and sometimes for a spouse or children.

Because group life insurance is designed to be simple, it usually comes with few hoops to jump through. Sometimes no medical exam is required, acceptance is guaranteed up to a certain amount, and you can pay any premium with payroll deductions.

All of that makes life insurance through work appealing, and it’s usually smart to check the box, especially if it comes at little or no cost to you. But that doesn’t necessarily mean your workplace policy is enough to protect your life outside the office.

Why employer-sponsored life insurance often falls short

Think about what your loved ones would need to cover over the years if your income disappeared tomorrow. There are short-term expenses that need to be covered—everyday living expenses, a mortgage or rent, child care—but there are also long-term goals that you may want to keep on track, like college savings or covering outstanding debts.

Some families may need closer to 10 times their income in life insurance coverage, depending on their goals and obligations. That gap is where employer coverage can leave people exposed, especially those who are caregivers or homeowners.

There’s also the issue of portability. Life insurance through work generally lasts only as long as you’re employed there. If you leave your job, retire or get laid off, your coverage may end or become significantly more expensive to keep. And because most employer-issued policies are term life insurance, coverage typically expires at a certain point, whereas a permanent policy is yours for life (as long as you keep up with premiums).

The pros and cons of life insurance through work

Pros of life insurance through work

• Often free or low-cost
• Easy enrollment during open enrollment period
• Often no medical exam required for basic coverage

Cons of life insurance through work

• Coverage amounts may be limited
• Typically coverage stays with your employer (some offer conversions)
• Usually doesn’t build cash value
• Less flexibility to tailor coverage to your long-term goals

When individual life insurance makes sense

This is where individual life insurance comes in. An individual policy is something you (not your employer) own, so it stays with you even if your job changes.

Term life insurance can be a cost-effective way to supplement employer coverage, especially during years when your financial responsibilities are high. You choose the coverage amount and term length based on your needs.

Whole life insurance offers lifelong coverage, meaning it can stay in place for as long as you pay your premiums, regardless of job changes or changes in your health. Another benefit of whole life insurance is that it includes a cash value component that grows over time. For this reason, whole life policies can play an important role in long-term financial and estate planning.

Many people find that the right approach is to have more than one policy: keeping employer-issued coverage (since it’s often inexpensive) and layering individual term or permanent policies for more complete protection.

How to know what insurance is right for you

The right amount and type of life insurance depends on your unique situation—your income, family situation, debts and long-term goals. That’s why it helps to look at your coverage as part of a bigger picture, not an isolated item in your benefits portal.

Your Northwestern Mutual financial advisor can help you see this big picture. They’ll get to the heart of what’s important to you and then help you build a comprehensive financial plan that includes both growth and protection strategies to get you to where you want to go.

They’ll help you look at your life insurance coverage in comparison to other solutions in place, evaluating what you have through work, how much coverage you may need and which options fit your unique situation. Together, you can build a strategy that offers clarity, confidence and protection for what matters most.