Life insurance through work: what it covers, and what it does not

What employer cover usually is

Most group life insurance is a benefit the employer buys for everyone at once. Because it is bought in bulk and without individual underwriting, it is easy to get and often free or cheap to the employee. That is its strength, and it is a real one: for somebody who could not otherwise qualify, group cover may be the only cover they hold.

The amount is normally set as a multiple of salary rather than as a figure chosen for your circumstances. It does not know whether you rent or own, whether you have children, or whether anyone else depends on your income. It is the same shape for the single graduate and the parent of three.

Why it is rarely enough

Work through what would have to be paid if your income stopped: the mortgage, other debts, the years of income your family would lose, and anything you intend to leave. For most households with dependants, that total is many times a year's salary. A policy sized at one or two years of pay covers the funeral and a few months of bills, and then it is gone.

There is also a timing problem. The years when a family is most exposed are usually the years of the largest mortgage and the youngest children, and those are often the years when people change jobs most. Cover that resets every time you move employers is cover that is most likely to be missing at the wrong moment.

It belongs to the job, not to you

Group cover generally ends when employment does. Some plans allow you to convert or continue the policy when you leave, but the terms are usually worse than a policy you bought yourself while healthy, and the window to do it is short. Many people do not find out about the window until it has closed.

It can also change without your say. Employers alter benefit packages, change insurers, and occasionally drop life cover altogether. Your own policy, once issued, does not depend on anyone's budget decisions but yours.

The mistake to be careful of is treating the employer figure as a reason to delay. Buying your own cover while you are younger and healthier is cheaper for the whole life of the policy; waiting until the job changes means applying older, and possibly with a diagnosis in between.

How to use it well

Count it, then build underneath it. Find the benefit statement, note the multiple and whether it includes any accidental-death element that only pays in narrow circumstances, and treat the total as a bonus on top of a policy that is yours.

Check who is named as beneficiary. Group policies are often set up on the first day of a job and never looked at again; a beneficiary named a decade ago might not be the person you would choose today.

If the plan offers optional extra cover at your own cost, compare it with an individual policy before taking it. Optional group cover is convenient, but it usually stays tied to the job in the same way as the base amount, and for a healthy applicant an individual policy might not cost more.