Understanding Your Benefits {Life Insurance}
An important part of creating clarity and confidence in your financial is being proactive in understanding how your benefits work through your employer. Nobody wants to be in an emergency when they realize they didn’t fully understand how their benefits work.
Today I want to help you simplify the process for understanding how your group life insurance benefits work. Life insurance is one of the things in life that is never fun to talk about, but it really gives your family peace of mind.
Before we dive into the details of group life insurance, it’s worth taking a paragraph {or two} to make sure you fully understand what life insurance is actually meant for. I’ll never forget the first time someone asked me what life insurance was meant for. My young and innocent self quickly responded that it was to pay for a funeral cost if something were to happen to myself.
As a young, newly married women I hadn’t stopped to think about the bigger purpose of life insurance. If myself or my husband passed away it wasn’t just about paying for a funeral. The mortgage {and all our other bills} had been budgeted based on both of our incomes…and the price of my mortgage wouldn’t change if something happened to my husband.
I quickly realized that life insurance is much more about replacing the income of my spouse, not simply covering a funeral cost. This is when I quickly realized we needed to re-evaluate our life insurance.
We only had one times our annual salary through work, and I knew that even before kids that wouldn’t last very long. When I dug in I found that at a minimum we would need $250,000 of life insurance to be able to pay off our debts and give each other a few years to figure out a new normal. If we wanted to set each other up to be more comfortable it was going to need to be closer to 10x our annual income in life insurance.
Once I set down and ran the numbers I realized that while 10x my income sounded like a BIG number {$400,000 at the time} it really wasn’t as impressive as I thought. I knew I could invest that income and it would pay my spouse around $40k a year in interest. Neither of us would be able to live a luxurious lifestyle on that. But we knew it would set each other up to not have to worry financially, and that was very important to each of us.
Once we decided on the amount of coverage we needed for our family we began looking at our options. At first we explored getting additional coverage through our employers, but we quickly realized that was a HUGE risk, there were quite a few loopholes {which is why it’s so cheap}.
First, we knew we weren’t going to stay at those jobs forever. When we read that we would lose the life insurance once we left that employer we knew we didn’t want to put any money towards that policy. We felt much more comfortable purchasing a policy outside of work. This allowed us to lock in a level premium and not have it tied to our employers.
Second, we realized that our employers could change or completely take away our life insurance! We did not feel comfortable with something as important as life insurance being controlled by someone else. I think it’s worth mentioning that we both had great employers, but it wasn’t worth taking the risk for us.
Once we realized that our life insurance through our employer wasn’t a guarantee we decided to keep the free coverage they offered (1x our salary) and supplement the rest outside of work. We each got a 30 year level term policy for less $60/mo. This was a no brainer for us.
We wanted to protect our greatest wealth building asset — our income!!
If you haven’t looked at the details of your benefits through work I hope this inspires you to take some time to explore your options. While we enjoyed the free group life insurance through our employers while we had it, we are so grateful we set up life insurance outside of our jobs.
If you are curious about what it looks like to get life insurance set up for your family, send me a message and I’d be happy to help. You can find me hanging out on instagram. Or you can send me an email at: beka@bekasteele.com
