What Is Supplemental Life Insurance?

You can buy supplemental life insurance through work or a private insurer to expand coverage on an existing policy.

Supplemental life insurance is an additional layer of protection to an existing policy. Supplemental insurance may include:

  • Additional coverage you can purchase to complement your basic policy.
  • Life insurance for your spouse and children
  • You will be covered if you are seriously injured or killed in an accident.

Your employer will typically offer supplemental life insurance, also known as employee-paid or voluntary insurance. Private insurers also offer policies.

Supplemental life insurance is a great option, especially if you have health issues that make it difficult to obtain enough coverage elsewhere. Compare policies and prices. Sometimes, the costs may not be worth it.

Why purchase supplemental life insurance

If you have free life insurance through your employer, as many people do, it’s natural to wonder why you’d want to pay for more coverage. These are just a few of the many reasons supplemental insurance is useful:

The basic life insurance policy you have is not enough to provide support for those who depend on your income.

Additional coverage is required for certain costs, such as burial fees.

A portable policy of life insurance is essential to protect you no matter where you are located.

You may need additional coverage, such as life insurance for your spouse.

What amount of supplemental life insurance should I buy?

To decide how much life insurance you need, start with two questions:

  • What financial burden would your death cause for others?
  • Are you able to afford these costs with your existing life insurance policy?

According to industry professionals, your life insurance coverage should range from 5-20 times your annual income depending on your personal circumstances. However, no one rule will be able to accurately reflect your individual circumstances.

The costs you are responsible for will determine how much supplemental life insurance you require. These are some scenarios that may require more coverage.

  • You are caring for an elderly parent or a child, which increases the dependency on your income.
  • You purchase a house and require additional coverage to cover future mortgage payments.
  • You are married and want to protect your spouse against unanticipated costs in the event of your death.
  • Your spouse has stopped earning and you are now the main source of income for your family.
  • You may have an increase in income and need to be covered for additional expenses.
  • You need to ensure that your child is covered for future tuition costs when he or she starts college.

Work-based supplemental life insurance

Supplemental life insurance can be purchased by employees if your employer offers it.

Most basic life insurance policies are free. They typically cover one to two times your annual salary. The premiums are paid by your employer.

Supplemental life insurance policies offer higher coverage limits but require you to pay premiums.

Supplemental life insurance policies are generally only available to full-time employees, or those who work less than 40 hours per week. To be eligible for supplemental coverage, companies will typically require that you have a valid basic insurance policy.

Types of supplemental insurance through work

Most supplemental life insurance policies through work are group term life insurance, and coverage is conditional on your employment. You may be able, depending on the policy’s portability, to convert your group insurance into a personal policy that you can take with you when you move.

These are the main types of supplemental insurance that employers offer:

  1. Supplemental employee insurance provides additional coverage for your policy.
  2. Supplemental spouse insurance protects your spouse’s life. This policy can also be used to protect a domestic partner in many cases.
  3. Supplemental child life insurance covers eligible dependents.
  4. You can also purchase additional accidental death or dismemberment insurance to supplement your existing policy. AD&D insurance pays out if you die or are seriously injured in an accident.

Employers may require that you purchase a supplemental policy before you are eligible for supplemental spouse and/or child life insurance.

What coverage can I get at work?

Supplemental employee life insurance policies provide more coverage than basic plans up to a limit which varies from company to company. The maximums can be as high as several million dollars, and range between $250,000 and $500,000 in most cases. Managers and high-ranking executives may have higher access than employees at the rank-and-file.

Limits for a spouse and child are usually lower. Maximums for children are typically $10,000 to $40,000 and for spouses, $45,000 to $500,000 respectively.

Unlike many term or whole life insurance policies from private insurers, supplemental life insurance through your employer may allow you to increase or decrease coverage amounts at certain times, such as an open enrollment window.

You should be aware that your death benefit could automatically decrease if you reach 70 or 75 if you have a supplemental insurance policy through work. To match the lower death benefit, you will only pay a portion of the premiums if this happens.

Is coverage guaranteed?

Basic life insurance policies are usually available through your employer regardless of your medical history or age. Companies will only accept supplemental life insurance if they have a certain coverage limit, such as $1 million or $100,000.

You may be required to undergo a medical exam to prove that you are not at risk of losing your insurance. You may be offered guaranteed coverage by your company only during open enrollment.

Private insurers offer supplemental life insurance

Open market provides more options for supplemental life insurance than plans offered by employers.

These are just a few examples of how a supplemental policy might look on the open market.

  • Permanent or term life insurance that can be added to your existing policy.
  • Child life insurance for dependent children.
  • End-of-life insurance that covers burial and funeral costs.
  • Short- and long-term disability insurance.
  • AD&D insurance is not tied to your job.

The open market policies for supplemental term or permanent life insurance generally offer higher coverage than plans offered by employers. Your age and your health could impact the amount of coverage you are eligible for.

What is the cost of supplemental life insurance?

Although supplemental life insurance offered through your employer may be more expensive than open-market policies, it all depends on where you work.

This is partly due to the way that insurers calculate group-life prices. Insurance companies take into account data about the entire group, such as average age and number of employees. These data are different for every company so premiums may vary greatly. A 40-year old employee may be able to purchase a $500,000 supplemental insurance policy at $600 per year at Company X but only $250,000 coverage at Company Y.

Cost can also be affected by your age. The rates for supplemental insurance policies through work do not lock in. This means that premiums may rise with age. A $500,000 supplemental insurance policy for an employee under 30 at Company A can cost $168 per year. However, the same policy for an older employee could cost as much as $6,000 per year.

Buying term life insurance through the open market will lock in your premiums for the entire policy’s duration, regardless of any changes in your health. If you are younger, it might be a better idea to buy life insurance through a private company and take advantage of the locked-in, lower rates.

Cost of supplemental products on open market is dependent on your age, medical history, insurer, and what type of coverage you select. In general, term life insurance is cheaper than whole–or permanent–life insurance.

Before purchasing supplemental life insurance, here are some key points to remember

According to a 2017 study by the Society for Human Resource Management, eighty percent of American companies offer supplemental insurance for their employees. However, just because you have the option to purchase it does not mean that you should.

What to buy: There are pros & cons to purchasing supplemental life insurance through your employer. You might value the ease of signing up at work and paying your premiums directly from your paycheck. It might be worth looking into supplemental coverage offered by your employer if you have a chronic health condition. You may also be able to use your youth and health to get a lower policy if you are young and healthy.

Alternative options: Some employers offer supplemental whole life insurance policies in addition to the standard term options. Your age and health could prevent you from being eligible. If you’re looking for more substantial coverage, consider laddering your life insurance policies — buying multiple term life policies of different lengths — instead of purchasing one supplemental product. If you want specific features instead of more coverage, you may be able to upgrade your current policy with life insurance riders, such as accelerated death benefits that let you take a partial payout from your policy if you become terminally ill.

Existing coverage: Review your existing policy before electing supplemental coverage. You may already have AD&D, spouse, or dependent life insurance included in your basic policy at no additional cost.

Portability: While basic life insurance through your employer is usually free, your coverage could be terminated if your job changes. You can take your supplemental insurance policy with you wherever you go.