Life insurance can be a minefield of poor options designed to enrich insurance companies and generate high commissions for salespeople.
Money expert Clark Howard prefers term life insurance for almost everyone. He views it as income replacement in the event of an untimely death so that spouses and children can continue living a similar lifestyle.
You want level-term insurance — or a policy where you lock into a monthly premium typically for 20 or 30 years.
Clark isn’t a fan of whole life insurance or other complex products that combine investing and insurance and cost you big-time in fees. He also typically advises against buying life insurance through your employer.
Why is that? That’s what a listener of the Clark Howard Podcast recently asked.
Should I Ever Get Life Insurance From an Employer?
Why should I avoid buying life insurance from my employer?
That’s what a listener wondered on the June 13 podcast episode.
Asked Alireza in Georgia: “During your podcast about life insurance you [advised against getting] life insurance through your employer but you did not mention why.
“Is there a universal rule that applies to all employer-offered life insurance policies? I have life insurance through my employer and would like to know if there are areas I need to look into before dropping my policy.”
Clark explained the drawbacks of employer-provided life insurance. Whether or not you should accept it typically comes down to whether your company is offering it to you for free.
“Employer-provided life insurance comes generally in two levels: one is where you get it either free or very cheap from your employer up to a certain amount with no health screening at all,” Clark says. “And particularly if it’s free, you just take it.
“But the second you leave that employer, the insurance generally is over. And that’s why I’d like for you to have your own insurance anyway.
“But the other thing is when you buy additional coverage through your employer, you’re not buying a level-term policy. You’re buying an annual renewable term. So every year the premiums rise with your age. And so it will get to a point where your mortality risk goes up a little every year so the premiums go up.
“Ultimately that insurance will become completely unaffordable.”
Life Insurance: Think Long-Term
Life insurance is a long-term product.
That’s why Clark wants you to make sure the prices are reasonable. The best term life insurance companies also are financially positioned to be around for decades to come.
The last thing you want is to pay a life insurance premium for decades only for your family to get no money if you die during the term because the company has gone out of business.
“Having your own life insurance policy that you own is a wiser choice for the long haul,” Clark says. “Particularly how most of us change jobs regularly. You don’t want to be dependent on life insurance that comes through your employer.”
The one exception? If you want some type of life insurance benefit but you’re considered uninsurable. Your employer-provided life insurance may be the only option you have.
Clark recommends level-term life insurance that you own for decades. If you leave a job, you typically lose your employer-provided life insurance.
Also, workplace life insurance typically is a renewable term. That means the price of your monthly premiums will get more and more expensive as you age. Perhaps eventually pricing you out of the product.
However, if you can’t get approved for any type of life insurance on your own, you can consider getting it through your job. If you get workplace life insurance for free, there’s nothing wrong with accepting it.