Should I get a life insurance policy if I’m already covered by my company?
[social_share]Many employers cover their employees with life insurance. This can be for a number of reasons. While it may mean that an employee does not need any additional life insurance, this has to be checked carefully.
Employers have tended to get life insurance for their employees for a number of reasons. One of the main reasons is that the tax system has encouraged them to get life insurance as it has often been a partially deductible expense of employment and it has not been fully taxed on the employee. It has also been the case that employers, particularly the large employers, have had a big price advantage as they can get a large discount due to the amount of people that they are buying life insurance for. Finally companies can have their own issues if valued employees die.
However, it must be remembered that the life insurance that the employer gets is going to be to the employer’s specifications. There are two limitations at work here. Firstly the life insurance that an employer will get will tend to be very inflexible. The reason why buying life insurance for a large group of people is so cheap is partly because of decreased administrative and marketing costs but also because there is a one size fits all approach which can drastically cut costs but can also mean that a policy may not be suitable. This may apply to what is covered, what level there is cover for and to whom the life insurance can be paid.
The second limitation is that many companies get life insurance for corporate purposes. For example many companies will get “key man” life insurance which means that the company will be paid if an important employee dies.
In the end life insurance coverage may be sufficient for an employee where the spouse or partner is able to earn a living and there are no dependents, but if there are dependents or if there is the desire to add other areas of coverage such as critical illness coverage then it may be a good idea to get supplementary coverage.
There is also often the issue that work based life insurance is not portable, in that it will not follow a person around from job to job. Work based life insurance may also be strict in only paying to next of kin, rather than paying a share of the money to parents or grown up children if the situation warrants it.
