Your Employer’s Life Insurance May Not Be The Best Deal

Sep 2nd, 2016

Save money on your life insurance and put the savings in  your 401(k)

Many workers sign up for the life insurance that their employer offers and I don’t think they give it much thought. They can’t shop for it. It’s not like they can look at three different policies the employer is offering and take the one that’s the best price for them. There’s one choice. Granted, there are usually some options. For instance, the Eli Lilly employees we work with are given two times their base salary in life insurance at no cost to them. That’s a great deal, no doubt. They then have the choice of purchasing up to an additional five times their base salary at whatever the current rates are. The rates increase in five year bands. For instance, the cost is a certain amount at age 40-44 and then increases from age 45-49, age 50-55 and so on. So the same amount of insurance would cost you more money every five years.

A great option that’s available that many people aren’t aware of or don’t think about is buying an individual life insurance policy. In other words, insurance that is not purchased through your employer, but you buy it on your own. For our Eli Lilly clients we often find that, assuming they are in decent health, they can get a less expensive policy on their own from about age 40. We’ve seen this often but let me use a case I just worked on this week as an example. The client is a 47 year old male with $550,000 of life insurance that he’s purchasing through his employer for $924 per year. At age 50 that same amount of insurance will cost him $1,254 per year. It will then increase again at age 55 to $1,848 per year, then $2,706 a year at age 60 until assumed retirement age 65. Assuming he’s in good health, he can get the same amount of life insurance with an individual policy for $613 per year, or $311 less than he’s currently paying. And the price doesn’t increase. It stays at $613 per year. His total savings from now until he retires at age 65 will be $20,778. That’s $20,778 more that he could put into his 401(k) to build up his retirement savings. That’s money that he would have spent on his employer’s life insurance. What a great way for him to continue to have life insurance for his family and use the cost savings to fund his 401(k) for retirement.

So compare your options. A little extra effort could save you a lot of dollars for a lot of years. When open enrollment rolls around this fall don’t just sign up again and forget it. Go ahead and sign up for as much life insurance as you can get. It’s the foundation of your financial plan. But then compare it to what an individual policy would cost you. Whatever you do, don’t drop the coverage at work until you’ve got everything done on your new individual policy. You don’t want to have any period during which you aren’t covered.

There are a lot of life insurance options out there. The cases I’m talking about here we are using term insurance – usually a 15, 20 or 30 year term. Your situation will dictate what’s best. If you have questions call or email us. We’re happy to answer them.


Eli Lilly newsletter

Helpful financial information and tips delivered straight to your inbox.

  • This field is for validation purposes and should be left unchanged.