Employer Life Insurance vs Personal Life Insurance

If you’re lucky enough to receive life cover through your employer, it can feel like one less thing to worry about. However, it’s not always as straightforward as it seems. The level of cover is often limited, and in most cases only lasts while you’re in that job. That’s why many people also consider taking out personal life insurance.

In this guide, we’ll break down the differences between employer life insurance and personal life insurance, how each one works, and which option might be the better fit for you and your family.

What is employer life insurance?

Employer life insurance is a type of life cover provided by your workplace as part of your employee benefits package. It usually pays out a lump sum to your loved ones if you die while employed with that company.

This type of policy is often referred to as relevant life insurance, designed to provide basic financial protection for your loved ones. The level of cover is usually a multiple of your annual salary.

Though it’s a valuable perk, it usually only lasts as long as you remain employed with that company. The payout may also be insufficient to fully replace your income or cover long-term commitments.

How much cover does employer life insurance usually provide?

The amount of cover offered through your employer's plan will vary between companies. Often, it’s typically based on a multiple of your annual salary. For example, if your salary is £30,000 a year with two times your salary covered, your beneficiaries would receive £60,000.

Some employers may also offer fixed lump-sum amounts, particularly in smaller companies or for specific job roles. Make sure to check your policy details, as in many cases the cover is designed to provide basic financial support rather than fully replace your income or cover major expenses.

What happens to employer life insurance if you leave your job?

Your policy is typically tied to your employment. It usually ends as soon as you leave the company, regardless of whether you resign, retire, or are made redundant. Once the policy ends, your loved ones won’t receive a payout if something happens after your employment ends.

Some employers may offer the option to convert your policy to a personal plan, but this isn’t automatic and often comes with higher premiums.

What is personal life insurance?

While employer cover is handy to have, it doesn't always offer the same level of protection as a policy of your own. Personal life insurance is a policy you take out yourself, having full control over all aspects of the policy.

It can come in different forms, such as term life insurance, which covers you for a set number of years, or whole life insurance, which lasts for your entire life.

You can also take out other types of cover, like joint life insurance, which can cover two people under one policy.

Unlike your employer’s cover, personal policies remain in force regardless of where you work, meaning your protection continues even if you change jobs or retire. You can also tailor the policy to suit your family’s needs, whether that’s covering a mortgage, providing for children’s education, or to help your partner maintain their lifestyle.

How much personal life insurance can you take out?

Having your own life insurance means you can choose the amount of cover that suits your individual needs and financial commitments.

Unlike employer life insurance, personal policies can provide significantly higher cover. The exact amount you can take out depends on factors such as your age, health, occupation, and lifestyle. Insurers assess these during the application process to make sure the cover is appropriate and affordable.

Not sure on the amount of cover? See our guide on ‘how much life insurance cover do I need?’.

How long does personal life insurance last?

The length of your policy will depend on the type of cover you choose. Term life insurance covers you for a set number of years, which you select when taking out the policy. It's often chosen to match specific commitments, such as the length of a mortgage or the time until your retirement.

Whole life policies, on the other hand, provide cover for your entire life. As long as premiums are paid, the policy remains in force, and your beneficiaries will receive a payout whenever you pass away.

What are the differences between employer and personal life insurance?

While both employer and personal life insurance can provide protection, there are several key differences between them:

Cover amount

Employer life insurance is usually limited to a multiple of your salary or a fixed lump sum. It is designed to offer basic protection rather than fully replace your income or cover long-term financial commitments.

With personal life insurance, you have full control over the amount of cover, allowing you to tailor it to your specific needs.

Policy ownership

An employer plan is owned and paid for by your employer. You cannot transfer it if you leave the company, and any changes to the policy are generally out of your control.

Personal life insurance, on the other hand, is owned by you. You pay the premiums and are able to make changes such as updating beneficiaries, or increasing cover.

Flexibility

Employer life insurance is usually tied to your job, so cover typically ends when you leave the company. Some employers may allow you to convert the policy to a personal plan, but this option typically comes with higher premiums.

Personal life insurance, however, stays in force regardless of your employment status. You can keep it if you change jobs, or retire.

It also allows you to tailor the policy to your circumstances. This includes aspects such as  the term length, policy type, and additional options such as critical illness cover and income protection.

Is employer life insurance cheaper than personal cover?

The cover offered through your employer is usually free as it's a part of your benefits package.

Personal life insurance typically costs more because it’s tailored to your individual needs. It also takes into account factors like your age, health, and the level of cover you want.

Can you have both employer and personal life insurance?

If you receive cover through your employer it’s a smart idea to have a policy of your own alongside it. That way you're covered no matter what, even if you change jobs or leave your employer altogether.

Having both types may also mean you have sufficient cover to protect your family, or support long-term financial needs. As employee cover can be limited it’s worth having your own policy to top up your cover overall.

Make sure your loved ones are adequately protected

Employer life insurance can be a huge benefit, but it isn’t always enough on its own. Taking a moment to review your cover could make a big difference to the people who rely on you.

Looking to arrange a personal policy from scratch? Cavendish Online can help you find the right level of protection at a price that suits you.

You can get a low-cost online quote in minutes, or speak to one of our friendly advisers for a bit more guidance. We’ll explain your options clearly, answer any questions you have, and help you make an informed decision, with no pressure and no obligation.