I have Life Insurance at work, BUT…
Factors to Consider
When choosing the right employer-paid life insurance policy, there are several important factors to consider. These factors will help ensure that you select a policy that meets your specific needs and provides adequate coverage for you and your loved ones.
Firstly, it is crucial to carefully review the coverage amount offered by the policy. Consider your financial obligations, such as mortgage payments, debts, and daily living expenses, to determine the appropriate coverage level. Additionally, take into account any future financial goals, such as college tuition for children or retirement savings, when assessing the coverage amount.
Secondly, evaluate the duration of the policy. Some employer-paid life insurance policies may only provide coverage during the time you are employed with the company, while others may offer coverage beyond employment termination. It is essential to understand the duration of coverage and whether it aligns with your long-term needs.
Furthermore, consider the policy’s portability. In the event you leave your current job, finding a policy that can be transferred or converted into an individual policy without the need for a medical exam could be beneficial. This will ensure continuity of coverage and save you from potentially higher premiums due to age or health changes.
Additional Benefits and Riders
In addition to the basic coverage, some employer paid life insurance policies offer additional benefits or optional riders. These extra features can enhance the value of the policy and provide added protection for you and your beneficiaries.
One common benefit is the accidental death and dismemberment (AD&D) rider. This rider provides an additional payout if the insured person dies or suffers a severe injury due to an accident. It can be especially valuable for individuals engaged in high-risk occupations or activities.
Another important rider to consider is the critical illness rider. This feature provides a lump sum payment if the insured person is diagnosed with a covered critical illness, such as cancer, heart attack, or stroke. This additional financial support can help cover medical expenses and other costs that may arise during a critical illness.
Other optional riders may include waiver of premium, which allows you to stop paying premiums if you become disabled, or a spousal coverage rider, extending the policy’s protection to your spouse or partner.
Policy Exclusions and Limitations
Just as it is important to consider the benefits and features of an employer paid life insurance policy, it is equally essential to review the policy’s exclusions and limitations. These restrictions outline the circumstances in which the policy may not provide coverage or only offer limited benefits.
Common exclusions may involve suicide within a specific time frame after policy inception, illegal activities, or participating in high-risk hobbies such as extreme sports.
Additionally, be aware of any limitations regarding pre-existing medical conditions. Some policies may have a waiting period before covering certain conditions, while others may exclude them altogether. Understanding these limitations will help you make an informed decision about the suitability of the policy for your individual circumstances.
Let’s go Deeper…
Video Transcription:
Hi, everyone. I hope you’re having a very good start to the week. This is Mike Sheehan from FinancialProf.org. I wanted to take a few minutes to talk about one of the things that comes up a lot when I’m talking to people about getting their life insurance in order. And it’s usually. Well, it, it depends.
It could be both the husband and wife, but most of the time I hear it from the husband and the husband’s comment is I have life insurance through work which most people do the thing about it is very few people, I hope this isn’t you, but very few people understand what that means, and even to a greater extent, have no idea what the amount of coverage there is.
Most work plans will provide you with 1 x your income and then I’ll have some people will say I have 5 times my income. My question to them is what is that amount? And they go, I don’t know because they don’t know what it’s based on. If it’s based on a base salary, if it’s based on a fixed amount, you know, maybe it’s five times of $10,000 or maybe it’s five times of your income, which let’s say you’re making $60,000.
Now you have $300,000 of life insurance. But folks, a lot of times, don’t know that. So that’s always my question. You need to talk to HR and find out exactly what you have. Because you don’t want that surviving spouse to find out after the fact that what you guys thought you had was not. what you had, and it’s usually not a good outcome.
I had a client once who had a policy through his employer, and he just had purchased a very small policy, like a $10,000 policy, kind of to provide for final expense, knowing that he had this large policy through work. He proceeds to retire. And had reached the age of 70. I get a phone call from the wife.
Wife says, yes, my husband passed away. I wonder if you can help me out. I said, sure. You know, so we processed the $10,000 policy. And then I did a little legwork to find out more about his policy through work. Unfortunately, I had to call her back with some very bad news. His policy at work through his employer had expired at age 70, so he didn’t have any coverage at work and in his mind it, you know, it was gonna be a pretty substantial amount of insurance.
Now, a couple of things could have happened here. One, they may not have been notified at all or two. He may have been notified, just didn’t pay any attention to it. Or three, it could be a combination of the both. He may, you know, may have gotten a notification, didn’t pay any attention to it or, you know, what, whatever, but again, not a very, very good conversation to have that I had with that spouse.
Cause she definitely was depending on that large check, which she did not receive. So, is it a benefit to have insurance through work? Absolutely. You know, a lot of times that you’re paying very, very little for it. But, the options that you want to, and the procedure/process that you want to go through as you get close to retirement, is find out: Is this policy convertible? Meaning, can I take it over and pay the premium and keep it? Is it not convertible? Does it just stop at the point that I stop employment? Or like in this case, does it stop at a certain age? And, anyone that would just let it go, you have to wonder why, you know, why did they just not want to find that out?
So, but most of my clients, I insist, so that I have it in my records, that they find out the parameters of a policy through their employer. Because again, nothing could be worse than having a surviving spouse find out something that they were dependent on from a life insurance standpoint and that they’re not getting it.
So if you are in that situation, do a little research, couple of phone calls, confirm it with an email, get some type of paper confirmation. That you can put with your other important papers that this is the coverage that I have through my employer and this is how it works. Now, folks that understand this, they will very well and subject to budget, purchase their own policy so that they know exactly what’s happening with that particular policy.
Whether it be a whole life, a universal life, a term policy. You know, I’ve been reaching out to some of my clients here that had a 20 year term policy and it’s now 18, 19 years old. And, you know, I’m starting to reach out to them say, hey, you got about a year here before this policy is going to stop or it’s going to increase in premium.
You know, again, some tough conversations because if they want to continue it, it could be prohibitively more expensive because now you’re 20 years older. But at least they know, and they’re able to have peace that either they’ve purchased another policy if they were in the position to do that.
Or understand that, hey, that coverage is no longer there. And both me and my spouse know about that and are aware of that at the point that one of us passes away. So again, do your homework. It’s too late after a person dies. If you’d like to talk with us and kind of review those types of things with you, certainly reach out to us at FinancialProf.org. So until next time, make it a great day.
