Do You Need Life Insurance Outside of Work? [Yes, Here’s Why]


A frequent life insurance 101 type question that comes up is regarding group insurance or employer-provided life insurance.

It’s important to understand what happens with life insurance if you lose your job.

Having employer-provided insurance benefits is a great perk of working for a large company, but is your group life insurance benefits enough?

Do you need life insurance outside of work? Yes, you do need life insurance outside of work. Work policies often don’t provide enough death benefits to protect your family adequately. Additionally, if you get separated from your employer, you could lose your benefits when you need them the most.

As veteran life insurance brokers, we recommend that you keep your work coverage to supplement, but be sure that you own an individual policy as well.

Term life insurance is more affordable now than at any point in history.

See how affordable term life insurance is by using our free rate comparison tool to compare the rates of the best life insurance companies in the United States.

Our article will cover the following pros and cons of group life insurance.


Feel free to skip ahead.

Why You Need Life Insurance Outside of Work

How Group Life Insurance Works

What Happens to Your Life Insurance if You Leave Your Job

Final Thoughts on if You Need Life Insurance Outside of Work

Why You Need Life Insurance Outside of Work

Getting group life insurance through your job is a nice perk of working for a great company, but it does have some drawbacks.

Group life insurance is usually capped to a multiple of your income, and that multiple is often not enough.

Most group life insurance policies would give one time your income for free, usually, which is not enough to protect your family if you were to die prematurely.

Some employer policies will allow you to purchase additional coverage through them, but even that is capped at five times your income typically.

Many financial professionals will advocate ten times annual salary as an appropriate death benefit.

Outside of having a coverage shortfall, group policies increase in cost over time as you get older, usually every five years.

It doesn’t make sense from a cost perspective to hold group coverage when you can purchase a level term life insurance policy instead.

With level term life insurance, both your rate and death benefit stay the same throughout your policy’s term period.

This will save you money over the long term and help you maintain your death benefits.

Additionally, securing life insurance coverage in the private market has never been easier than today.

Life insurance companies are increasingly introducing no-exam life insurance that can get you approved in minutes instead of months.

These non-medical policies eliminate the hassle of a medical exam that has discouraged some people in the past from purchasing life insurance.

Also, don’t procrastinate on purchasing your coverage.

If you wait to get private life insurance, and then lose your coverage at work, you could be in for a big surprise.

Life insurance naturally gets more expensive as we get older.

Additionally, if you want life insurance with a pre-existing condition, sometimes you may not be insurable at all!

Your best chance of getting private coverage at an affordable rate is by working with a veteran high-risk life insurance broker.

Life insurance brokers work with multiple life insurance companies to find you the best deal.

Each life insurance company will have different rates and underwriting requirements, and your broker will know what company to match you with to get you covered.

How Group Life Insurance Works

Group life insurance is usually provided by your employer and is explicitly priced to you, typically based on your age and gender.

Rates usually will increase over time as you enter a new “age band.”

Simply put, your rate will remain the same while you’re in an age band, and most age bands are five years.

While no group policy is the same, most are purchasable with either little or no medical underwriting.

As a result, the cost of life insurance significantly increases as you get older, and your risk of death is higher.

As the price increases, many healthy people will opt out of group coverage for a more affordable option.

However, if you are uninsurable, group coverage can still be a good deal later in life.

You would enroll during your employee onboarding process and can make adjustments to your coverage once a year during open enrollment.

What Happens to Your Life Insurance if You Leave Your Job

If you leave or lose your job, then you lose your life insurance coverage since it is contingent on you being employed with your group plan sponsor.

However, most group life insurance plans have a portability option inside of the policy that allows you to take the coverage with you and pay for it without your employer’s subsidy.

The window to invoke the portability option is usually small, sometimes within two weeks of you ending your job.

In practice, most people do not use the portability option, though.

If you’re fired or quit your job, the last thing you want to do is add another bill to your expenses.

Additionally, since your employer is no longer subsidizing your rates, the cost of the plan usually increases from what you were paying while employed.

Lastly, the coverage may not be permanent or have a level payment.

The last thing you want is for your life insurance to become too expensive later in life.

There are life insurance policies available that have unemployment riders built into the policy that protect you if you lose your job by waiving your premiums for a certain amount of time.

This can be the difference between dropping your coverage and remaining protected while finding new work.

Final Thoughts on if You Need Life Insurance Outside of Work

Life insurance through your job is a great benefit but does not eliminate the need for a private life insurance policy.

Work plans are easy to qualify for and purchase, but they often do not provide the appropriate amount of death benefit coverage to protect your family.

Additionally, work-life insurance plans increasingly become more expensive as you enter older age bands.

The price increases cause healthier clients to drop their group plans and go elsewhere for coverage, which increases the cost of group insurance for everyone else in the plan.

Finally, if you lose your job, you may lose your coverage.

Many group life insurance policies have a portability option that will allow you to take your group plan with you when you leave your job.

However, you will need to pay the full cost of the insurance without your employer subsidizing part of it.

Therefore, few people use this option in practice due to the high cost of porting their group insurance, especially if they are in excellent health.

If you’ve recently lost your job and are in good health, you should compare your portability option with a private policy.

You can view the rates of over 30 highly-rated life insurance companies using our free rate comparison tool below to see how private policies compare with your group coverage.

The difference in price may shock you.