Supplemental life insurance

If your employer offers life insurance, it’s likely a basic policy that covers a minimal amount — often just enough to handle short-term expenses. Supplemental life insurance, however, allows you to add extra coverage through your employer to better protect your family’s financial future. This additional layer can be crucial if you want to leave your loved ones enough to cover mortgage payments, college tuition or other long-term expenses. Bankrate will help you explore how supplemental life insurance works, how it can complement your existing coverage and tips for deciding if it’s the right choice for you and your loved ones. 

What is supplemental life insurance?

Also known as voluntary group life insurance, supplemental life insurance is an extra layer of life insurance coverage that employers often provide beyond their standard group life policies. Typically, companies offer a basic group policy at no or minimal cost to employees, but for those who want additional protection, supplemental life insurance is a convenient, employer-provided option to enhance coverage levels.

Since basic group life insurance through an employer may only cover one year’s salary or a set amount, supplemental life can help bridge the gap if you have more substantial financial needs, like covering a mortgage or ensuring your family’s long-term security. Supplemental coverage may also include optional life insurance for an employee’s spouse and dependent children. These amounts are often very minimal.

Supplemental policies generally don’t require a medical exam, making them accessible and practical, particularly for those who want more coverage without going through an extensive underwriting process.

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How does supplemental life insurance work?

Supplemental life insurance is designed to boost the coverage your employer’s basic group life policy provides, allowing you to secure a higher death benefit than the base policy alone. Many employers offer supplemental options of three to five times your salary, with some policies extending up to 10 times. This added layer can provide the extra financial security needed for long-term goals, like paying off a mortgage, paying off other substantial debts or funding a child’s education.

Supplemental coverage often requires proof of insurability typically given through a brief health questionnaire. However, medical exams are usually not required, making it more accessible than individually underwritten policies. While the premiums are based on group rates, your cost will typically increase as you enter new age brackets. However, this coverage, like basic group life, won’t automatically transfer if you leave your job, meaning it will likely end with your employment unless there’s an option to convert or continue the policy independently.

Pros and cons of supplemental coverage

Supplemental coverage offers several advantages, along with a few limitations:

Pros

• Higher coverage limits, typically three to 10 times your salary.
• Easy accessibility, often with no medical exam required.
• Generally lower rates due to group pricing.
• Spouse and dependent life insurance may be offered at low rates.

Cons

• Rates typically increase as you age, unlike locked-in rates for some private policies.
• Coverage is only inforce if you’re actively working with the company.
• Limited customization, with fewer options for riders compared to individual policies.
• Employers can change benefits, which could impact your coverage.

How to buy employee supplemental life insurance

If your employer offers supplemental life insurance, purchasing this extra coverage can be a simple way to enhance your financial protection. Here’s how to navigate the process:

1. Enroll during open enrollment or eligible life events: Most employers offer supplemental life insurance as part of open enrollment, the period each year when employees can sign up for or adjust their benefits. If you miss this period, you may have another opportunity if you experience a qualifying life event, like getting married or having a child.
2. Estimate your additional coverage needs: Determine how much extra coverage you’ll need beyond the standard group life policy. For some, the base group policy may cover one year’s salary, but this may not be enough to meet all your family’s future expenses. Calculate based on your family’s needs, such as paying off debts or covering years of income replacement.
3. Review eligibility requirements: Employers may offer supplemental life insurance without medical underwriting, although some might require a brief health questionnaire. Ask HR about the process and if you’ll need to meet any specific health criteria to qualify, especially if you’re opting for a higher coverage amount.
4. Compare rates: Supplemental life insurance offered by your employer is generally priced based on group rates, which can make it more affordable than a private policy. However, premiums can rise as you age, so it’s worth checking the cost over time and comparing with private options if affordability is a concern.
5. Check policy portability: Confirm with HR if your supplemental policy can be converted to an individual policy if you leave the company. Not all policies are portable, and those that are may carry higher premiums post-conversion.

Types of supplemental life insurance

Your employer likely offers a few different types of supplemental insurance. These options may include:

• Supplemental employee life insurance: This type of coverage may increase your coverage as an employee.
• Supplemental family life insurance: Supplemental spouse life insurance may provide a death benefit in the event that your spouse passes away. Supplemental child life insurance typically covers the death of your child or qualifying dependent.
• Supplemental accidental death and dismemberment: If you die or lose a limb in a covered accident, this policy could pay out to your beneficiaries in case of death or to you in case of dismemberment.

As you can see, you may be able to tailor supplemental coverage to fit your needs to an extent. If you want to cover situations beyond these, you may want to look into individual life insurance policies and riders.

How much supplemental life insurance should I get?

Determining the right amount of supplemental life insurance involves considering your family’s financial needs and how well your current coverage would support them if you were gone. Here are some quick considerations:

• Assess your financial obligations: Start by calculating major expenses your loved ones might face, such as mortgage payments, outstanding debts and future college costs for children. A common guideline is to aim for coverage equal to ten times your salary, but this varies based on personal circumstances.
• Evaluate existing coverage: Look at what your base group life insurance policy already covers. Supplemental life insurance can help bridge any gaps, ensuring enough support for your dependents if your base policy is limited.
• Benefits of a private policy: While supplemental life insurance is convenient, it typically doesn’t follow you if you leave your job. A private policy adds an extra layer of security, giving you coverage that is not tied to your employment. Private policies also offer more flexibility with customizable coverage levels and riders.
• Limited underwriting advantage: For those with health issues, group and supplemental life insurance are advantageous because they often involve limited (or no) medical underwriting. This can make it easier to get additional coverage, even if you have conditions that would otherwise impact a private policy’s cost or eligibility.

Considering these factors can help you choose the appropriate amount of supplemental life insurance coverage, bridging the gap between coverage that is affordable and sufficient. 

Frequently asked questions

• What are alternatives to supplemental life insurance?

  While employer-offered supplemental life insurance may be a quick way to increase your coverage, the options tend to be fairly limited. If you want a policy that allows the death benefit to grow over time, you might want to consider a whole life insurance policy. Or, if you’re looking for a policy that grants you greater flexibility when it comes to your premium payments, a universal life insurance policy might be a better option. If you just need coverage for a set period of time but don’t want that coverage to be tied to your employment status, individual term coverage may be best for you.

• Is employer supplemental life insurance worth it?

  It might be, but you may want to weigh your options and consider individual life insurance options before committing to supplemental coverage through your employer. You might have more flexibility elsewhere and may find a policy type that better fits your particular circumstances with a reputable life insurance company. A financial consultant or insurance professional may be able to offer more personalized guidance if you’re unsure about the best way to increase your life insurance coverage.

• How much does supplemental life insurance cost?

  The cost of supplemental life insurance depends on several factors, including the amount of coverage you choose and whether your employer offers a discounted rate. Supplemental life insurance through your employer can be less expensive than buying an individual policy on your own. Since supplemental policies often involve group rates, they’re typically not priced based on your specific health or medical history, which can be a benefit for those with health conditions that might increase rates on private policies.

  The actual cost will also vary based on your age, as premiums often increase in five-year age bands. For those seeking coverage beyond what an employer offers, comparing both supplemental and individual policies can be a good strategy to find the most affordable and comprehensive coverage.

• What is the difference between supplemental life insurance and life insurance riders?

  Supplemental life insurance is increased coverage for a group or employer-sponsored policy. Life insurance riders are additional coverage options that you may be able to purchase in addition to an individual life insurance policy.

• Does supplemental life insurance carry over?

  Typically, your supplemental life insurance will end as soon as you leave your job. However, in some cases, your employer may allow your coverage to carry over — or “port” — for some time after. The best way to find out is to speak with your human resources department.