I’ve already got life insurance in my retirement plan, is it enough?


Most retirement plans will provide members with a default level of coverage which can be increased, decreased or cancelled altogether. If your employer is making contributions through a 401K, you most likely have a default level of coverage. The coverage provided may be sufficient for your situation, but you need to weigh up the benefits and drawbacks of this option and whether you require an additional level of protection.

Benefits of investing through your retirement plan

  • Generally cheaper as coverage is purchased in bulk.
  • Premium payments may be tax-deductible if paid with pre-tax dollars.
  • Self-employed workers under the age of 75 may be eligible to claim a tax deduction for personal contributions.
  • In some cases, employees can arrange for an employer to make contributions directly to their 401K for an amount that will include the premium of life or disability coverage.
  • Payments are made automatically and directly from your 401K and not your after tax income.
  • Reduced requirement for health checks.

Drawbacks of investing through your retirement plan

  • The types of coverage available are limited.
  • Benefits paid to non-dependents can attract tax.
  • Payment of benefits can be more complicated and drawn out as the benefit is paid to a trustee first who then distributes funds.
  • Coverage is generally more comprehensive and flexible for policies .
  • Coverage expires around age 70 (most policies outside of a retirement plan will continue to provide coverage until age 90 or 100).