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Should I Get Life Insurance Through My Employer?

There are often questions in our online physician community asking about the need for an individual life insurance policy if an employer offers a group plan as an employee benefit. Some physicians may not even ask the question, assuming they’re covered if they have a policy through work. While an employer-provided group life insurance policy can be a nice benefit, especially if your employer covers most or all of the cost, these policies typically don’t offer enough coverage for most doctors and can leave you vulnerable in the future. They can also be more expensive than alternatives. Therefore, for most doctors, we recommend purchasing your own life insurance policy, even if you have a work policy. Below, we cover what you should know about life insurance plans through work, whether you should take the option to have it, and considerations for additional coverage through individual policies.


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5 limitations of employer provided group life insurance policies


Do I even need a life insurance policy at all?


While disability insurance protects your income if you’re hurt and can’t work, life insurance helps protect your loved ones and provide stability in the event of your passing. Not all physicians need life insurance in every stage of life, but you’re more likely to need it than not at early to mid stages of your career if somebody depends on you for financial stability.


Consider life insurance if you have:

  • Kids, or are planning on having kids in the future

  • A spouse or significant other who depends on your income or depends on your contributions to the household (this includes stay-at-home parents)

  • Family (parents, siblings, etc.) that depend on you or your income (or family you want to help provide for, like grandchildren)


When physicians need to have a life insurance policy in place

Unless you have enough existing assets already saved or paid off to help ensure that your dependents and loved ones maintain the lifestyle that you want for them, you should consider getting life insurance. 




Should I opt in to the option to get life insurance through my employer?


Opting into an employer-provided policy during your annual benefits enrollment period may seem like an easy way to secure a policy, but it doesn’t ensure that you’ve selected the right policy, that it offers you the best coverage at the best value (especially if you’re paying for it out of pocket), or that you will be able to keep the policy long-term.


Don’t get us wrong - if you’re getting coverage for free, there’s very little downside that we can think of to taking it as a supplement to an individual life insurance plan, but we would caution you against making it your primary mode of life insurance unless you’re unable to qualify for life insurance separately or if a separate policy would be prohibitively expensive due to your age or health status. Here’s why.



Limitations of employer provided life insurance policies


Employer-provided policies typically don’t follow you if you leave


Coverage with a life insurance policy through work typically ends when your employment does. While we all may think or hope a job is a forever job, the reality is physicians often change jobs throughout their career. In fact, the average retention for physicians at their first job is under 2 years. 


Some employer sponsored policies may offer some portable features, but they often have strings attached, such as:

  • Limited coverage amounts

  • Higher premiums

  • Health reevaluation requirement


If you change jobs, there’s no guarantee that your future employer will offer a policy (or that it will be adequate for your situation). In addition, you may not be able to qualify for an individual policy in the future. If you can, it may cost you significantly more, as premiums typically increase with age, and interim health history may result in exclusions or denials.


An employer-provided plan may be nice to help supplement an individual plan, but relying solely on this benefit, especially if you change jobs and lose the policy, can leave your family vulnerable and scrambling to make difficult financial decisions in an already heartbreaking and emotional time.



Offered employer life insurance coverage typically isn’t enough


Most employer-provided plans provide life insurance benefits equal to 1x-3x your annual salary, while general guidance for life insurance is around 10x your annual income. Factors that go into determining life insurance needs include:

  • Your current net worth and availability of liquid assets

  • The number of dependents you have and their ages

  • Your standard of living

  • Debt obligations that will survive you


For most physicians, we’ve seen that the policy amount through work doesn’t provide nearly the long-term stability they desire for their dependents, with most physicians in the communities reporting wanting 3-5 million in life insurance at early stages of their careers.




Life insurance plans at work lack customization


Group life insurance plans are a one size fits all, take it or leave it option. Unlike with an individual policy, you can’t:

  • Choose the type of policy

  • Choose your coverage amount

  • Set your term length


If your employer standard plan isn’t enough coverage (which it likely isn’t), you can’t opt to increase your coverage. These policies typically can’t be customized at all, which means you also lose options such as laddering separate policies of different amounts and lengths.



Employer-provided policies are often more expensive for the amount of coverage that you get, and premiums may increase over time

 

The TLDR here is that if you’re young and healthy, chances are that you will get much more coverage for the same amount of money (with some physicians reporting 10x as much) if you get your own independent life insurance coverage.


There are two typical pricing models for group life insurance policies: composite pricing and age-banded pricing.


Composite pricing is a one-size-fits all model, which means they assess the same amount of risk across the board for everyone on the plan in order to provide the same premium for everyone on the plan. Under this model younger, healthier individuals are likely to pay higher premiums than what they would for an individual policy, as they have to help subsidize others on the plan.


If a group plan uses age-banded pricing, you may be able to secure lower premiums when you’re younger, but premiums aren’t locked. In this situation, your premiums will increase over time, making the same coverage more expensive as your risk of needing the policy increases. Additionally, you may find yourself having to make the decision to drop coverage if it gets too expensive, leaving you without coverage.


Even under a composite pricing structure, there’s no guarantee that your premiums will remain the same from year to year. Premiums may still increase, which can doubly impact younger, healthier doctors.


Group policies are often guaranteed issue, which means they have a simplified underwriting process and don’t require a medical exam. While this can be a great benefit to doctors who have a preexisting health condition and don’t qualify for coverage under an individual term policy, this increases the risks the insurance company takes, which they pass on to policy holders in the form of higher premiums.


An individual term life insurance policy, in contrast, typically has fixed premiums over the life of the policy, and is rated for your specific situation.



Should I decline the life insurance policy offered through work?


If you can get a free policy through work, there’s no harm in getting it. If it’s deeply discounted or subsidized, it can still be worth considering as an extra layer of security. 


Given its limitations though, we’d encourage you not to think of it as your primary policy if you can qualify for a policy outside of work. Additionally, be careful about including this benefit amount when putting together your financial planning and securing coverage, as there’s no guarantee it’ll be around if you change jobs or your employer changes the offered benefits.



Where can I buy my own life insurance policy?


If you need a policy, we recommend working with an independent insurance broker. Brokers can run rates across multiple companies and help you navigate your options, and it doesn't cost you anything to use them. We have partnered with a few companies who have helped thousands of our physician members.

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PolicyGenius: PolicyGenius is well known in the insurance space, and is a very convenient way to shop for life insurance as they will run rates across the major companies online within minutes, and then get on the phone with you to discuss your options. Contact them here.

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Pattern: This option will allow you to enter your information and immediately begin generating quotes, as well as schedule a meeting with the great team at Pattern to discuss the options and figure out which plan is best for you. Contact them here.

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Moment Insurance: Complete your quote inquiry information in less than five minutes and easily schedule an appointment to speak with a dedicated, experienced life insurance expert who will walk you through the process from start to finish and help you compare different options. Many in the group have worked with their experts previously, and had a great experience! Contact them here.


Note: When shopping for life insurance, we recommend getting a term life insurance policy (not a permanent life insurance policy, as it typically doesn’t make sense to mix insurance with investing except in very specific circumstances). Term life insurance is much cheaper than permanent life insurance for the same amount of benefit, and serves the purpose most are buying insurance for.


Learn more with our guide to life insurance.



Additional tips for buying life insurance


We would encourage:


  • Buying private, term life coverage as early as possible. While life insurance typically doesn’t offer trainee discounts like disability insurance, premiums are lower the younger and healthier you are. Premiums will only increase with time, and the longer you wait, the more your risk developing a health issue that can make you ineligible for coverage outside of a guaranteed issue policy, which is often significantly more expensive for the same level of coverage as noted above.


  • Considering laddering individual term policies. You’ll likely need more coverage when you have a young family and not much in savings, and less coverage later in your career, as your dependents leave the nest and you grow your retirement nest egg. Laddering policies can help you maximize your coverage to your needs while helping reduce the cost of premiums.


  • Reaching out to a financial advisor if you need help. We’re all for DIY, but it can help to have a professional in your corner who can help you develop a comprehensive financial plan. A financial advisor familiar with working with physicians can help you calculate the right amount of coverage, compare options, and integrate insurance into your overall financial and estate planning strategies. NOTE: Just be wary of a financial advisor who is selling the policies themselves (conflict of interest and a red flag, especially if they try to sell you on a permanent life insurance product, such as whole life insurance). Explore our financial advisors database and learn how to interview an advisor.


  • Periodically reviewing your coverage. While laddering policies can help you plan for the future, no one can predict with 100% accuracy how your financial future will play out. You may find your family would be more comfortable with more coverage earlier than you expected, or that you (hopefully!) reach financial independence sooner than you thought and don’t need as much coverage for as long. Your coverage needs will evolve in a number of situations such as family changes, increases in income (or lifestyle), buying into a practice, or investing in real estate. Review your coverage and needs with each changing season, and adjust accordingly.



Conclusion


An employer-provided group life insurance policy can be a nice employee benefit if subsidized, but it’s rarely enough and leaves you vulnerable with its lack of customization and ability to travel between jobs. As an aside, there are similar concerns regarding relying on an employer-sponsored plan for disability insurance. As such, we recommend that in most cases, a physician also buys their own life insurance policy.


While no one likes to dwell on it, all your hard work toward building a financial future for yourself and your family can be undone in an instant without proper protection in place. It’s far better to have coverage that you don’t end up needing than ending up in a situation where you need more coverage and it’s too late to secure it. Not only does life insurance provide financial stability for your loved ones, but it can provide you peace of mind that they’re taken care of.



Additional insurance resources for physicians


Explore related PSG resources:


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