Life Insurance: A Benefit Employees Think They Understand (But Usually Don’t)

Summary

Employees often misunderstand life insurance, leaving them with a false sense of security. Employers can prevent disappointment and build trust by explaining coverage in plain English, using real-life examples, keeping the conversation ongoing, and encouraging questions. Clear communication ensures life insurance delivers on its promise of protection.

Life insurance is one of those benefits people may forget about once they purchase it. They assume the coverage is “enough” and move on. 

However, most people aren’t sure how much coverage they have, what it actually means for their family, or how long it would realistically last. And this lack of understanding is risky for them and frustrating for you as the employer when it comes back around.

A false sense of security 

Employer-sponsored life insurance is a great perk. It can be offered as a flat dollar amount (a set amount), a percentage of the employee’s salary, or in increments. But if employees aren’t aware of how much coverage they have, they may not know if their life insurance will help their family cover a mortgage, child care, tuition, or everyday living expenses. 

Despite this, many employees believe they’re set because the benefit exists, and it feels like one less thing to worry about. The issue isn’t apathy; it’s misinformation. Employees don’t know what questions to ask, and too often, no one is stepping in to explain. 

What it means for employers 

Life insurance plays a role in retention and satisfaction because benefits reflect a significant part of your team’s compensation. When employees discover that their coverage falls short in the worst possible moment, it doesn’t matter that it was “the standard package.” To them, it feels like a broken promise. 

That kind of disappointment erodes trust, and once trust is gone, it’s hard to rebuild. 

Where communication breaks down 

Too often, life insurance is included on one slide in the open enrollment presentation. Employees are expected to understand coverage amounts, conversion options, and supplemental policies in that one quick touchpoint.  

As with health insurance, benefits education shouldn’t be a once-a-year event. You cannot explain something complicated and unfamiliar one time and expect employees to remember the details. Life insurance deserves the same ongoing attention. 

How to make it better 

Helping employees understand life insurance doesn’t have to be complicated. A few intentional steps go a long way: 

• Break it down in plain English. 
  Instead of saying, “You have a flat benefit and are covered at one times your salary,” explain: “If you make $50,000 a year, your life insurance benefit is $50,000. That amount may cover rent or a mortgage for about a year, but it probably won’t stretch to college tuition or childcare.” 
   

• Use examples. 
  Show what it looks like in practice: “An employee earning $40,000 with two children may need closer to $400,000 in coverage to maintain the family’s lifestyle for several years. If the company provides $40,000, that leaves a $360,000 gap.” Putting numbers in front of people makes the decision real. 
   

• Keep the conversation going. 
  Talk about life insurance at times other than open enrollment. For instance, send a mid-year email: “Have you had any big life changes, like marriage, a new baby, or buying a home? That’s the time to review your life insurance coverage.” It’s a simple nudge that helps employees re-engage. 
   

• Highlight options. 
  If you offer supplemental coverage or riders, your employees may not be aware of that. Give a scenario: “If you want to add long-term care protection, you can purchase a rider that lets you use your life insurance benefits if you face serious health challenges later in life.” That transforms life insurance from a “death benefit” into a living benefit. 
   

• Encourage questions. 
  Create an open-door policy for benefits. Share this message: “If you’re not sure what your coverage means for your family, reach out to HR or your broker. We’ll walk through your situation and explain in plain terms what’s covered and what’s not.” When people know where to go, they’re more likely to take action. 
  

Why it matters 

At its core, life insurance is about protection. It’s about giving people confidence that their family will be okay if the unthinkable happens. When employees misunderstand their coverage, they’re vulnerable. 

As an employer, your role is to offer benefits and make sure people understand them. Clear communication doesn’t cost much, yet the return is massive: trust, loyalty, and peace of mind. 

In those moments that matter most, employees are counting on you. 

Content published by Q4intelligence

Photo by shurkinson