Job at risk? Save your insurance

Employer life insurance isn't a great deal

Life insurance is another key coverage for many families. If anyone depends on you or would suffer financially should you die, then life insurance is a must. To determine how much coverage you should have, use MSN Money's Life Insurance Needs Estimator. If you need insurance, you may need a lot: A family with young children may need coverage that's 10 times the parents' annual income.

Even though your employer may offer coverage, life insurance at work is generally a bad deal all around. This kind of coverage is:

• Inadequate. Most employers that provide coverage as part of your benefit package give you $50,000 or the amount of your annual salary. If you need life insurance, you likely need a lot more.

• Not portable. Coverage typically ends when you lose your job.

• Expensive. If you can buy more than the basic coverage through your employer, you'll probably overpay, particularly if you're younger and healthier than your company's average employee, because you're being charged more to cover their risk. "The people who are left in the group coverage pool," said Byron Udell, the CEO of insurance-comparison site Accuquote, "are those who are too sick or too lazy to shop around."

• Variable. Group life insurance is typically offered in age "bands," Udell said, with the price increasing each time you pass a benchmark: 35, 40, 45, etc. By contrast, you can lock in a low payment for 10, 20 or 30 years if you buy your own level term insurance policy. ("Level" means the premium stays the same for that 10-, 20- or 30-year period; "term insurance" is pure insurance with no investment component.)

The solution: Buy policies on your own if you can. Now is a great time to buy, Udell said: Term life insurance prices are near the lowest they have ever been.

Prices have fallen so far that many people can buy a cheaper policy to replace one they already have, even though they're older, Udell said. (Read "Refinance your life insurance" for tips.)

Anybody who bought life insurance 10 years ago, he said, should be looking to replace it.

Some guidelines:

• Buy enough coverage. Life insurance agents love to tout the investment returns and other features of so-called cash-value life insurance, but such coverage is expensive. The premiums can be 10 times as much as term life insurance. Consider such policies only if you can afford enough coverage; otherwise, stick with term life.

• When in doubt, go long. Udell likes 30-year policies for their flexibility. The rates are somewhat higher, but you've locked the premiums in for longer. You can always let a 30-year policy lapse after 20 or so years, he said, if you no longer need the coverage. But if you buy a 20-year policy and it turns out you need coverage longer, you'll pay through the nose. Rates typically skyrocket after your term expires.

• Shop around. You can get quotes from Accuquote and Insure.com, among other sites. Chose a financially strong company; A.M. Best, Standard & Poor's and Moody's all rate companies' financial strength.

Forgotten but crucial: Disability insurance

The last piece of your insurance coverage is the one that's often missing: disability insurance.

You're actually more likely to be disabled than to die during your working years. In fact, nearly one out of three Americans age 35 to 65 will suffer a disability lasting at least three months, according to the Health Insurance Association of America. But most Americans don't have sufficient disability coverage.

If you're still working, you're probably covered by workers' compensation insurance, which can pay medical costs and provide some income, but only if you're injured on the job. Your employer may offer coverage that covers disabilities suffered off the job, but this coverage is usually tied to your employment. Lose your job and you'll probably lose your coverage.

Buying coverage on your own is an expensive proposition, and it may be impossible to get if you have health problems.

Video: Will you need long-term care insurance?

So here's an approach to consider:

• Opt for long-term-disability coverage if your employer offers it. This is generally the least expensive way to go.

• Try to supplement the coverage with an individual long-term-disability policy. Insurers that offer this coverage include Unum, Cigna and MetLife.

• If you lose your work coverage, try to expand your individual coverage. You may be able to boost your monthly benefit for an additional premium.

• If you're buying a policy on your own, buy smart. Get the highest monthly benefit and longest payout period you can, but keep costs down by choosing a longer waiting period before benefits kick in. For more information, read "Disability insurance can save your life."

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated Sept. 15, 2009

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