The employer life insurance versus mortgage life insurance question is one we hear often. People are grateful to have this work benefit, as it protects them if a spouse or loved one dies unexpectedly while still working for their employer.
Usually, your employer offers this work life insurance coverage at no expense to the employee. Some employers also allow employees to purchase additional life insurance coverage under their group benefit coverage plan. These increased coverage amounts are in multiples of your annual salary. We have seen these plans offered anywhere from two times your annual salary up to seven times your annual salary.
If your employer offers this insurance, we recommend you accept this coverage if it is provided at no cost to you.
What should employer provided life insurance be used for?
We recommend employer-provided life insurance not be used for mortgage protection; specifically, it should never be used to pay off your entire mortgage balance. Your family will need this life insurance money to replace your income for the next year or two after your death.
Remember, you will also have to pay burial costs, medical bills, and other expenses related to the death of a spouse or partner that will eat into this life insurance money quickly. If your spouse or partner made $100,000 when they died, you would receive a check from the insurance company for $100,000. When your spouse or partner were alive, they would earn $100,000 a year, but only bring $70,000 home, because they were in a 30% tax bracket.
It would be wise to count on using $70,000 from your insurance proceeds for income replacement and allow the other $30,000 to be used for burial cost, medical bills, lawyer cost, estate planning, and other expenses associated with the death of a loved one. If all those bills don’t add up to $30,000, that’s extra money for you to use to support your family without your spouse or partner.
Although $70,000 is a lot of money, it is only one-years’ worth of salary for your spouse. This money will go quickly! It will only last you a year if you maintain the same spending levels as when your spouse or partner was alive.
$70,000 would pay off a substantial portion of most people’s mortgages. It would even pay off a lot of people’s entire mortgages. But, for most people, $70,000 will not pay off BOTH one year’s worth of expenses AND a mortgage. That’s where mortgage protection shines in protecting homes and families.
Why do employers provide free life insurance?
Providing free life insurance helps attract talented and qualified people. Most employers provide this benefit, so it is an expected benefit by most employees.
When employers are negotiating benefit plans for their employees, they can get very good pricing. These benefits are relatively inexpensive for the employer when bundled with group health benefits, disability benefits, and other employee benefits.
Is my employer provided life insurance safe?
Unless you own the company you work for, your job is never guaranteed for life! If someone else signs your paycheck, they can always decide not to sign your paycheck anymore.
As long as you are working for your employer, you should be eligible for their free life insurance coverage; unless they change their benefit plan. As an example, we helped a family recently, where the wife’s employer had just reduced their employer-provided life insurance by 30% to cut the expenses.
This employee had worked for this employer for 13 years before her life insurance benefit was cut. She assumed she would always have that same life insurance coverage. She was planning on retiring in seven years and needed that original life insurance coverage to protect her home and family.
We helped her get qualified for some affordable mortgage protection that she owned and controlled to protect her home and family when she dies. Now, even if her employer eliminates more life insurance coverage from her benefit plan, her mortgage and family will still be financially safe.
My employer said I could purchase additional life insurance and take it with me when I leave.
Very few employers offer this option. This life insurance benefit may be offered through some group benefit plans. You will pay a reduced premium (your employer will subsidize some of this expense) while you are still employed. Once you leave your employer and get out of your employer group life insurance benefit plan, you must pay the amount for this insurance.
How long do you work for your employer?
Today, the average person will work for 10 to 15 employers during his or her career (an average of 12 job changes). That’s 12 different employers, 12 different business owners, 12 different bosses, and 12 different benefit packages that will change over the years.
Relying on your employer’s life insurance benefit plan to protect your family places them at great financial risk. You never have control over your employer provided life insurance! If you purchase a mortgage insurance or life insurance plan with your money, you always have complete control over your life insurance benefits.
When protecting an asset as important as your house, you need to own and control your mortgage protection coverage. Spend some of your money on mortgage protection insurance versus going out to dinner, going to a movie, or buying a Starbucks coffee a couple of times a week. If your home and family are worth protecting, mortgage protection will be worth the investment.
What if I am my employer?
If you’re self-employed, you will have to purchase your life insurance and mortgage protection insurance. The good news is, usually, you can write this off as a business expense!
While working for that employer, you would have free housing. Knowing you didn’t own the home, would you make any investments in the home? Would you remodel the kitchen? Would you upgrade the bathroom? Would you put in all new appliances? Of course not! Why? Because you don’t own the house!
You would appreciate the benefit of free housing while you worked there. You would also worry about what would happen if you lost your job, if the economy changed, if your employer downsized, if they changed the benefit plan, or if they no longer offered free housing. You would always worry about when this great benefit would end!
In this example, you can lose your employer-provided home at any time, the employer can reduce or eliminate this benefit, you can lose your job, you could be forced to relocate to another part of the country for personal reasons, you could become sick or ill and become unable to work. There are many ways you could lose this free house benefit.
Your employer life insurance is no different than this house benefit example; you don’t own it, and you don’t control it. If you look at national employment statistics, you will work for multiple employers throughout your lifetime!
How can mortgage life insurance help me?
Mortgage protection life insurance protects your home and family, regardless of where you work, regardless of how old you become, and regardless of how sick you become. What you own, you control.
The best pricing for mortgage protection you will ever get is today. You’ll never be any younger, and rarely will you get any healthier. Mortgage protection life insurance cost is based on your current age, your current health, the time you want to be protected, and the money you want to go to your loved ones at the time of your death.
The employer life insurance vs. mortgage protection life insurance and work insurance vs. life insurance question is one we often help people understand. We are confident in recommending you protect your home with your own mortgage protection or life insurance policy.