What Is Supplemental Life Insurance? | US News – U.S. News & World Report

Supplemental life insurance is designed to augment an existing policy by filling in gaps in coverage. This kind of coverage is optional, employee-paid life insurance that is generally offered by an employer. Supplemental life policies can also be purchased outside of the workplace and directly from insurers.

Any rates listed are for illustrative purposes only. You should contact the insurance company or insurance agent directly for applicable quotes.

* Monthly costs are for a 35-year-old female for a $1,000,000 coverage policy of a 20-year term.

What Is a Supplemental Life Insurance Policy?

Many companies offer group life insurance coverage at little or no cost to employees as part of a benefits package. However, payouts are usually very low – the death benefit may be only one or two times the employee’s annual salary or a flat amount of $20,000 or less.

Because this kind of coverage is so limited, an employer may also offer workers the option to buy what’s known as supplemental life insurance. This can extend coverage to a spouse or child, add protection in the event of an accident, provide for end-of-life expenses, or increase your policy’s death benefit. Death benefits of $5,000 to $1 million or more may be available, depending on the policy type and purpose.

Unlike group life insurance through work, supplemental life insurance is an extra-cost benefit that you must pay for out of pocket, regardless of whether you purchase it through your employer or a private insurer. In some cases, you may need to answer a health questionnaire or take a medical exam before purchasing coverage.

Can I Buy Supplemental Life Insurance Through Work?

Employers typically offer supplemental life insurance as an optional benefit for employees who want more coverage than a group life policy offers. In most instances, you can only obtain this coverage during an employer’s annual benefits enrollment period or if you’ve experienced a major life change, such as getting married or having a child.

Supplemental life insurance policies may be offered as:

Term life insurance. Also called temporary life insurance, this kind of coverage lasts for a set period of time, generally ranging from one to 30 years.
Permanent life insurance. These policies offer lifetime coverage, guaranteed or adjustable premiums (depending on the type of policy), and a cash value component. Premiums are typically higher than those for term insurance. 

Supplemental life insurance may also be available in the form of an add-on or rider to your group life policy, such as:

Higher death benefits. You may be able to raise your policy’s limit by a greater multiple of your annual salary or to a specific dollar amount. 
Coverage for your family. You may be able to add your spouse, domestic partner, or child to your policy. Death benefit amounts are usually lower than they would be for you, however.
Burial insurance. A final expense policy is intended to provide money for end-of-life costs such as medical bills or funeral costs.
Accidental death and dismemberment (AD&D) protection. This kind of coverage provides compensation in the event that you are killed or maimed in an accident.

Pros and Cons of Buying Supplemental Life Insurance Through Work 

One advantage to buying supplemental life insurance through your job is that the premiums may be lower than if you were to buy it through a private insurer because employers can negotiate lower rates. Another plus: Premiums are usually deducted automatically from your paycheck, meaning you don’t need to worry about making payments yourself.

The primary drawback is that employer plans are limited to a few options that may not fit your needs. Another limitation to buying supplemental life insurance through work is that it’s not portable in most cases. If you leave your job, your coverage will end – just like other employer-provided benefits do.

Can I Buy Supplemental Life Insurance From an Insurance Company?

Many private insurers sell supplemental life insurance policies that can be used to supplement a workplace group life insurance policy. Options include:

Term or permanent life insurance for a partner or dependent
Burial insurance for end-of-life expenses
Accidental death and dismemberment (AD&D) coverage

Pros and Cons of Buying Supplemental Life Insurance From a Private Insurer

An advantage to buying private supplemental life insurance is its portability. As long as you maintain the policy and pay your premiums on time, your coverage is guaranteed. It can’t be revoked because you change jobs, and you don’t have to wait for an annual enrollment period to buy a policy.

Depending on the insurer, you may be able to get higher limits and choose from a wider range of term or permanent policies. However, you may be scrutinized more than you would through an employer’s plan since the risk isn’t spread across all employees. Your age and health, or that of the insured, could make a big difference on eligibility and premiums.

How Much Supplemental Life Insurance Should You Buy?

Everyone’s life insurance needs are different. One good way to decide how much supplemental life insurance you may need is by taking a close look at your finances and your long-term needs. Factors worth taking into consideration include:

Your partner and dependents: Do you have (or plan on having) children or dependents? How will your partner balance child care and work if you pass away? How much of a cash cushion will be helpful to adapt to your loss? Some insurers recommend choosing coverage of 10 to 15 times your annual pretax salary. 
Higher education expenses: A year of tuition and fees at a four-year institution can range from $10,700 to $30,800 on average, according to The College Board. If you plan on paying for someone’s higher education in the future, you’ll want to budget for this expense as well.
Debts such as a mortgage, car loan, or credit cards
End-of-life expenses: Median funeral and burial costs can be as high as $8,500, according to the National Funeral Directors Association. 

Learn More

For more information about life insurance, see the following guides:

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