Employer-Provided Life Insurance

[aresay]

Recently, my employer began providing free group life insurance coverage. Is there any reason not to enroll? I assume enrolling would not affect my ability to get my own coverage later if I wanted?

 

[Matt]

Recently, my employer began providing free group life insurance coverage. Is there any reason not to enroll? I assume enrolling would not affect my ability to get my own coverage later if I wanted?

Yeah, you can have multiple life insurance policies, so this is a no brainer. Your only consideration will be the amount of coverage that they offer you. If the amount is greater than $50,000 in death benefit you have to start paying income tax on the cost of the policy about that amount. The table is below:

Table 2-2. Cost Per $1,000 of Protection For 1 Month

Age Cost
Under 25 $ .05
25 through 29 .06
30 through 34 .08
35 through 39 .09
40 through 44 .10
45 through 49 .15
50 through 54 .23
55 through 59 .43
60 through 64 .66
65 through 69 1.27
70 and older 2.06

So for example, if you were under 25 and they offered you a $125K policy, you'd have to pay income on the cost of the policy above $50K ($75K in this example) and you'd then:

75X$0.05 = $3.75 per month, times 12 would mean $45 would be added to your effective wage and you'd pay tax/FICA on it.

Not a big deal in this example, but if you had a bigger policy and were older, it can start adding up.

Further Reading: http://www.irs.gov/publications/p15b/ar02.html#en_US_2014_publink1000193677
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Group-Term Life Insurance Coverage

 

[jmw]

Is there any reason not to enroll? I assume enrolling would not affect my ability to get my own coverage later if I wanted?

Good thinking. It doesn't matter with life insurance. Just take it.

Sounds like you may have just started at a job, so I'll add this:

If we were talking about disability insurance (doesn't matter who pays the premiums), the answer would be completely different. Group coverage for disability counts against the max you are eligible for when shopping an individual policy. It's likely you would purchase an individual policy that is much better (but more expensive) than the one provided by your employer.

 

[aresay]

Thanks! It is a $50,000 policy (life insurance only, no disability), so it sounds like I am good to go.

 

[Matt]

Thanks! It is a $50,000 policy (life insurance only, no disability), so it sounds like I am good to go.

Yep -many are just to avoid the hassle of the reporting I outlined above. Go for it.

 

[Sesq]

Free coverage is a no-brainer. Some employers (including mine) will let you buy additional coverage as part of the group. This gets trickier, as the group purchase option may save you a couple bucks if your health is poor. At my company there are age buckets and it gets less marketable as you get past 40.

But there is a bigger reason not to use this as your sole source of insurance than price, if you have an insurance need. It is that you may not always work for this employer. What happens if you get canned on Monday, go home to tell your wife, the mother of newborn triplets, then get killed in a hit and run on the way to the unemployment office on Tuesday? Similar, what if you work for your employer for a good number of years, get married, start a family (have an insurance need), and then at some point you discover a medical issue that will eventually kill you, but will certainly now kill your ability to acquire life insurance. Now you may be trapped in a possibly no-good job, with perhaps a terminal illness, or a risk profile that isn't terminal but is uninsurable.

Not the question of the thread but thought it useful to raise these issues if it lives on in search. Cliff notes - when you need insurance, buy some level term (20 - 30 years) independent of your job.

 

[Josh F]

Recently, my employer began providing free group life insurance coverage. Is there any reason not to enroll? I assume enrolling would not affect my ability to get my own coverage later if I wanted?

The only reasons I can think of is if someone would kill you to collect or you really hate your family.

As usual @Matt covered all the good points already...

 

[Erin]

To echo Sesq, I have a good friend that lost his job after 20 years and had to look for Life Ins. It cost a whole lot more to get a term policy in his 40s than it would have been in his 20s. Take the free coverage but don't rely on it for your only policy.

 

[MickiSue]

Heh. The first husband of a friend of mine worked for one of the US car mfrs, and he had double indemnity LI if he was killed on the job. She used to tell his friends that, if he died anywhere but at work, whoever was with him should drag his body back to the plant.


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No, he's still alive.