The pitfalls of Employer-provided Life Insurance - Annual Enrollment Series

Employer-provided life insurance is a great benefit, but it's important to understand the pitfalls of relying on it as your sole source of life insurance coverage. One of the biggest pitfalls is that you could lose your coverage if you lose your job.

If you don’t port or convert your policy within a certain time frame after leaving your job, usually 30 to 60 days, you will lose your coverage permanently. Some employers do not allow porting of life insurance policy. If you are allowed to port the life insurance policy on your name, it will be ported as a whole life policy with much higher premiums compared to term life Insurance.

According to a study by the Life Insurance and Market Research Association (LIMRA), only 13% of employees who lose their jobs are able to keep their employer-provided life insurance coverage.

As you get older or develop health conditions such as high cholesterol, diabetes or high blood pressure, insurance companies will view you as a higher risk, resulting in higher premiums if you try to purchase individual insurance policy in future after losing employer provided coverage.

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Employer-provided life insurance policies typically offer a flat amount of coverage, such as one or two times your annual salary. This may not be enough to meet your family's needs, especially if you have a mortgage, young children, or other financial obligations. Typically, you need Life Insurance that covers 10yrs of family expenses, college expenses for children and remaining mortgage balance.

Another issue with employer-provided life insurance is that you have no control over it. You have to take what your employer offers and hope it fits your needs. You may not be able to choose the term length or the riders.

Here are some additional statistics to consider:

• Only 57% of Americans have life insurance.

• The average life insurance payout is $175,000.

• The average American family has $250,000 in debt (including mortgage)

Given these statistics, it's clear that many Americans are underinsured. If you're relying on employer-provided life insurance alone, you may be putting your family at risk. Consider purchasing an individual policy to supplement your coverage and give your loved ones the financial protection they need.

Evaluate the need for Life Insurance and review the same annually as your income, dependents and circumstances change. Employer provided life insurance is great but it is not enough and may not be available when you need it, so have a plan to supplement the same.