Hitmetrix - User behavior analytics & recording

Do Millennials Need Supplemental Life Insurance If They Have a Policy Through Work?

millennial life insurance

These days, you might get a group life insurance policy in your benefits package at work for free or at a low cost. This is an extremely valuable benefit — if you pass away, your employer-provided policy pays out a death benefit to help boost your loved one’s financial security. However, group life insurance is often insufficient for many millennial professionals’ needs. It doesn’t usually provide enough coverage or enough wealth-building opportunities. Plus, you can lose it if you switch jobs. As a result, many millennials could benefit by getting another policy outside of work. With that in mind, this article will dive into a few reasons to consider a supplemental life insurance policy.

Reasons to consider supplemental life insurance

Here are a few reasons to consider getting a supplemental life insurance policy:

1. You’ll still have coverage if you switch jobs

Job hopping is quite common among millennials, according to Forbes. Changing jobs allows you to find employment you find fulfilling, advance more quickly in your career, and increase your income. However, switching jobs can also cause you to lose your group life insurance.

Group life insurance policies are tied to your job. If you leave the company, even for retirement, the typical group policy doesn’t come with you. However, supplemental life insurance policies available through insurers outside work don’t disappear when you change jobs. They remain in force for their entire policy terms as long as you keep up on premium payments and meet your other policyholder obligations.

2. You want enough coverage for beneficiaries to replace your income

The IRS excludes the first $50,000 of employer-provided group life insurance coverage from the employee’s taxes. Any amount over $50,000 covered by your employer is considered a taxable benefit. For example, if you have $60,000 in employer group coverage, you may owe taxes on $10,000 of coverage.

As a result, many employers offer no more than $50,000 in death benefits. This is rarely enough to replace more than a year of income. According to the US Census, the 2021 median household income was $70,784. Therefore, you may want to purchase supplemental coverage outside work.

Having enough coverage to replace 7 to 10 years of your annual salary is generally recommended. So, if you earn $50,000, you’ll potentially want $500,000 in total coverage. This can help your loved ones replace your income for years to come if you pass away unexpectedly.

3. You need to build more wealth

Your retirement accounts may not be enough to reach your financial goals as you move up in your career and earn more. For example, the 2023 401(k) contribution limit is $22,500. Plus, most employers don’t match your contributions past 3 to 6% of your salary. At the same time, as you earn more, your group life insurance policy becomes insufficient for your life insurance needs.

A supplemental permanent life insurance policy can help solve both of these problems. This policy can cover you for life and let you build wealth through a cash value growth component. Your insurer puts part of each premium in the cash value. Then, it grows tax-deferred at a certain rate depending on the policy type.

Once you accumulate enough cash value, you can withdraw from or borrow against it with favorable terms. You don’t have to wait until retirement to access your cash value. As a result, you could use your cash value to pay for your child’s college fund, pay off higher-interest debts, and even retire a few years early.

If you no longer need coverage and surrender your policy, you get the full cash value minus surrender charges. That way, you don’t lose the wealth you spent years building.

Consider supplementing your employer-provided life insurance

Although group life insurance is an excellent piece of an employee benefits package, it’s often quite limited. A supplemental policy can make up for the deficiencies in your employer-provided life insurance.

Supplemental life insurance policies are available in more significant amounts, which is vital if you want to provide additional financial security for your family and your income and expenses are rising. They also stay with you if you leave your job — whether you change jobs, get laid off, or retire — ensuring you’re covered regardless of the situation.

As you advance your career, your financial planning needs may also grow more complex. Supplemental permanent life insurance offers you more ways to save and invest through the cash value growth component. If you find yourself needing more coverage, extra peace of mind, or additional avenues for building wealth, consider supplementing your group life insurance with a supplemental policy.

Related Posts