As part of the coverage couple’s FAQ series, we’ll be answering the question “I already have life insurance through my job, so I don’t need it anymore, right?”
Wrong. This question, while its intentions are sincere and understandable, is perhaps the single most harmful and detrimental train of thought imaginable. Life insurance is a personal protective strategy, it should not only perfectly match your life and lifestyle today, but more importantly take into account your life and lifestyle years into the future. After all, unless you’re planning on dying tomorrow, life insurance is by function of design intended to be something you don’t use for a while. Employers, as you may assume, treat life insurance as an afterthought of an afterthought, haphazardly shoehorning it on to a benefit package. It’s like that chunky low-res flip down screen in the minivan that looked cool at the dealership, but the kids ignore in lieu of their phones. The point is, these so-called blanket policies employers pretend is actual life insurance is not a legitimate tool to protect your health or your families financial interests.
For being called “blanket policies”, the irony of “workplace life insurance” is those policies sure leave you out in the cold! Imagine having a helmet that fit everyone’s head. While that sounds great, the reality is it actually doesn’t FIT anyone’s head. It either looks like a 10-gallon cowboy hat on one person, or a shrunken spinner-hat on the next. While it might seem appealing to at least have the helmet when you’re in danger, when danger comes — and it will — you don’t want to wear someone else’s awkward helmet an HR rep chose from a discounted benefits catalogue years ago… you want a tailored forcefield of impenetrable protection! That’s why the smart move isn’t just to be proactive with your plan, but to be personal with it! It’s important to know even if your temporary employer available coverage allows you to cover a spouse, the benefit will not only be limited but now you’ll both be trapped in the situation where you “hope” your work insurance is enough, rather than seeking the situation where you KNOW it is!
When it comes to your life (which is probably one of the most important things to you AND those who love you), it should be treated in like manner — important and valuable. In the same way you didn’t stop by Wal-Mart and have an employee grab you something out of the discount bin to wear to your wedding, life insurance shouldn’t be haphazardly chosen by someone else. Sadly, every client we’ve ever consulted with hasn’t been able to answer these 2 most basic questions imaginable, concerning their employer coverage (or even their own privately secured policy): (1) What do you have, and (2) how does it work? If that sounds concerning, you’re right. If it sounds like YOU, you should be concerned!
So not only is employer life insurance vague, underfunded, and generic…but 100% of the time, it’s owned, controlled, and retained BY your employer. This is huge. Life insurance, by its very NAME, is intended to cover YOUR LIFE, not your job! Work sponsored life insurance is dangerous because it creates an artificial sense of security, therefore festering complacency and inaction. So many employees falsely assume their low-dollar amount blanket-policy is their magical umbrella, no matter when or how much rain comes. The truth is you “own” that policy as much as you “own” your job (i.e., not at all). The nano-second you resign, get fired, retire, get laid off, get bought out, your company goes under etc. ALL of your benefits vanish into thin air. In fact, not only is this harsh reality something to be aware of, but the not-so-pleasant secret is “group” life insurance is actually over-priced… so you’re overpaying for something you’ll likely never use, and was never intended or designed for you.
Group coverage of all types, but especially when it comes to life/death, isn’t meant to address your needs, it’s meant to satisfy your subconscious. The insurer knows they can entice employers to purchase this short-term snake-oil because it makes their benefits package appear attractive. Behind the scenes though, group life insurance is severely inflated, which is the driving force behind the reason those policies are so tiny (on average only providing $25-50,000). Group coverage carriers KNOW they can’t compete with the open market, because when an individual is allowed to freely compare a variety of options and features, the consumer realizes they don’t have to pay the premium surcharge penalty built-in to the “one-size-fits-none” policy at work. It’d be like buying car insurance from a company that penalizes you every time a 16 year old that works at your company, gets into a wreck! The entire premise is nonsense, but even more than that it’s a deceptive psychological trick to prey upon employees by convincing them they’re “good, and don’t need any more insurance” as I’ve heard so many times. Any more insurance? Technically speaking, unless that person literally works himself to death at that job, they don’t actually have ANY life insurance!
We have to mention something we have first-hand experience with: Upon retirement from any job, not only does your “job insurance” (you shouldn’t really call it “life” insurance) disappear…but now that you’re older and wiser, even *IF* you wanted to secure your own genuine life insurance policy, it’ll be more expensive than ever at that point. This phenomenon is what influenced the rampant bankruptcy of retirees over the last half-century. During our career years, we feel insulated from financial catastrophe, because we’re “covered” by the confidence in Friday’s paycheck, and the life insurance policy we’ve never actually seen or read that’s paid for with payroll deductions. That illusion of false safety is like the frog in boiling water. It goes without saying that if your job offers one of those small $20-50,000 dollar freebie policies, then go for it.
I can’t believe we haven’t addressed the following disadvantage yet: Employer policies are NOT adjustable, meaning since YOU don’t own it, you can’t influence how it’s structured and how it adapts over time to your life, income, raises, assets, tax liabilities, promotions, family changes, and so on. Unless you’re hoping you never get a raise or promotion, and you never move or purchase anything for the rest of your life…the policy employers squeeze into your new-hire paperwork doesn’t even make sense on day-ONE, let alone day ten-thousand-and-one when you retire, switch companies, get laid off, and so on.
WARNING: Speaking of tax liability, we HAVE to bring up something crucial no one we consult with is aware of. *Group life insurance is taxed in an ENTIRELY DIFFERENT WAY than PERSONAL (real) life insurance! Please pay attention to this, because it’s one of the most hazardous facts about tax law, that is always swept under the rug: IF you actually were to die during your healthy working years, the state will seize and collect taxes on your employer-based death benefit amount. This leaves your family in an even more vulnerable (and potentially penniless) condition, considering the STARTING amount of your job’s life insurance is already under funded. The state probate and department of taxation along with the IRS view those employer life insurance “proceeds” as income. As ridiculous as that is, it’s the law, and simply means insult will be added to the injury of your family’s grieving.
We’re going to have to call it at this point and wrap up, because these horror stories could go on and on. The hard truth is that employer group life insurance isn’t just dead-on-arrival, it never had a pulse to begin with. With your job insurance, your paychecks get chipped away at every week so the policy stays active, which is nothing more than a gamble (and we know who always wins when you gamble). With a personal privately purchased life insurance policy you actually own, your monthly contributions aren’t only gaining interest if your policy is structured right, but you also don’t have to DIE to use your own money! So real life isn’t isn’t a gamble at all since it allows you to be your own bank when you get sick or injured before you pass away.
Employer life insurance takes your money while fooling you into feeling protected and secure. Based on all these facts (and many more we skipped over for sake of time) we’re confident having life insurance through work is more harmful than NOT having life insurance at ALL. What we mean is those payments being withheld from your paychecks — even if your employer splits some of the costs with you — would be so much better spent by actually investing in the cure to your future, rather than renting the same band-aid, hoping it’ll be there when the day comes you desperately need it.
In summary, life insurance through work is a temporary benefit, your life deserves a permanent guarantee — and your family would agree 100%. We know you’d rather say “I KNOW my family will be OK” rather than “I hope my family will be OK.” NerdWallet, USA Today, Forbes, Investopedia, and countless others agree, issuing warnings against relying upon the short-sighted scheme of job insurance. REMEMBER: The average retirement today, even in the highest states of Massachusettes and South Dakota, = 67 years old. The average life expectancy is between ~80 years old depending on which data-set you go with (plus females live even longer on average).
We commit to conducting deep investigative research for you, and would like for you to reserve time with us, without any cost or obligation. We’ll carefully listen, and then follow up with a proven, practical, custom proposal for your review. HERE is our official invitation to take part in The Coverage Couple Challenge, where EVERYONE WINS. Visit the Scheduling Page at thecoveragecouple.com to see how much we can save you on your existing coverage, or provide a financial risk assessment and needs analysis for your review if you’re unprotected and univested. We hope to hear from you soon, because your life is worth the investment! -Aaron & Sarah, The Coverage Couple