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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Whole life insurance combines life insurance with an investment component.
- Coverage for life
- Tax-deferred savings benefit if premiums are paid
- 3 variations of permanent insurance: whole life, universal life and variable life include investment component
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
- Fixed premium over term
- No savings benefits
- Outliving policy or policy cancellation results in no money back
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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:
- 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.
- 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.
- 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.
- 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.
- 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.
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