Life insurance is one of the more grim personal finance topics to talk about but it’s still an important one. We all like to think we’ll live a long and healthy life but sometimes certain events are beyond our control.
I’ve talked about why it makes sense for a stay at home parent to get life insurance so obviously it makes sense for the working parent too right?
Most employers offer life insurance through payroll deductions so you might already be enrolled and not even know it. My employer gives us an included benefit of 1x our annual salary for life insurance with the option to purchase more. 1x your annual salary would be nice but it’s nowhere near adequate to cover the future expenses of an average family.
With kids, mortgage, college tuition, etc. most people will generally need 5-10x their annual salary, but is it a good idea to purchase it through your employer? Purchasing through payroll deductions is definitely the easiest way to get more life insurance but it may not be the cheapest.
What’s the Typical Employee Look Like?
If you’ve ever set foot in an engineering company or classroom, you know that it’s a male dominated industry. I didn’t get into this field for the women, I did it for the money. Even though there are large movements happening to attract more women and younger people in general to engineering, the typical employee at my company is a 40-50 year old male.
When an employer offers life insurance to the whole company, their rates are negotiated based on the average employee. I consider myself a lot healthier than the average employee at my company so I’m effectively subsidizing the unhealthier/older employee’s rates. I could get a much better rate/life insurance plan by finding my own provider and going that route.
Look at it like this: If you have a 25 year old male and a 65 year old male, obviously the 65 year old would have to pay a higher premium for life insurance. But what if they wanted to get a plan together? You would combine the rates and divide by two to get the same coverage. So the younger person is paying for a portion of the older person’s rate.
Who Does It Make Sense For?
While it doesn’t make sense for the younger generation to purchase, it might make sense for those closer to retirement to purchase life insurance through their employer for the exact opposite reasons.
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
The takeaway here is that the easiest option isn’t always the smartest. You may be able to save money by finding your own provider or you might get a better deal by going through your employer. It all depends on your age and the average age at your company. Saving money takes work so don’t be afraid to do a little research and get a term life insurance quote with Suncorp. If you’re young, you’ll probably save a lot of money by switching to an independent provider and if you’re older it can’t hurt to check.