What is Supplemental Life Insurance? All You Need To Know

What is supplemental insurance

According to the 2021 Insurance Barometer Study by LIMRA and Life Happens, both industry-funded entities, two-thirds of Americans rely on their supplemental life insurance from work (also known as group life insurance) or another family member’s life insurance. However, over half (48%) of workers claim they don’t comprehend or grasp only partially the life insurance benefit provided by their companies.
Don’t be concerned if you’re new to supplemental life insurance. We will explain what an employee supplemental life insurance is, who might benefit from it, and how to buy it in the sections below.

What is Supplemental Life Insurance?

Supplemental life insurance refers to any life insurance policy that you have in addition to your primary life insurance coverage. Most frequently, this is life insurance provided by your employer in addition to the free or low-cost group policy provided by many employers as part of their benefits package.

A supplemental policy may be provided by your employer, but it is not required. And it can be worth thinking about depending on how much your employer’s policy provides for you and your family.

It is occasionally tailored to meet a specific need. Some people, for example, would buy a supplemental policy to cover funeral and burial expenses in order to avoid leaving a financial burden on their survivors. A policy like this might range from $5,000 to $25,000 or more.

If you acquire your supplemental policy through work, it’s a good idea to sit down with your policy documentation and look through the structure. A supplemental policy may not kick in until you’ve exhausted the advantages of your existing policies. Other restrictions may apply as well.

How Supplemental Life Insurance Works

In addition to the basic insurance coverage provided at work, your employer may offer you the option to acquire additional coverage at your own own. If you are a member of a union or another membership organization, you may have group insurance benefits and the option to increase them if you so desire.

As opposed to most individual policies, this supplemental insurance may not need a medical checkup. If you purchase it through your work, you may be able to pay for it using simple payroll deductions.

Buying Supplemental Life Insurance Through Your Work

If your workplace provides employee supplemental life insurance, you can buy it in addition to the regular policy.

Most basic life insurance policies are free and cover one or two times your annual wage. The premiums are paid for by your employer.

The insurance products feature higher coverage limits, but you are usually responsible for paying the premiums.

These policies are typically available exclusively to full-time employees or those who work a certain number of hours each week. To be eligible for supplemental coverage, most companies need you to have a valid basic life insurance policy.

Types of Supplemental Life Insurance Through Work

Most supplemental life insurance policies provided by your work are group term life insurance, and coverage is contingent on your continued employment. You may be able to convert your group life insurance to a personal policy and take it with you when you leave, depending on the policy’s “portability.”

The four primary types of supplemental life insurance provided by employers are as follows:

  1. Supplemental employee life insurance supplements your existing policy.
  2. Supplemental spouse life insurance protects your spouse’s life. A domestic partner is often covered under this sort of policy.
  3. Supplemental life insurance for children covers qualifying dependents.
  4. Supplemental accidental death and dismemberment insurance supplement your primary policy. If you die or are critically injured in an accident, AD&D insurance will pay out.

Before you can be eligible for a supplemental spouse or child life insurance, your employer may require you to buy a supplemental policy for yourself.

Read Also: Understanding the Meaning of Contingent Liabilities

How Much Coverage Can I Obtain at Work?

Supplemental employee life insurance policies provide additional coverage than basic plans, up to a predetermined limit set by the firm. Maximums normally vary between $250,000 and $500,000, but can exceed several million dollars. Managers or high-level executives may have greater access to funds than rank-and-file employees in some instances.

Limits are often lower for a spouse or child. A child’s maximum may range from $10,000 to $40,000, while a spouse’s maximum may range from $45,000 to $500,000.

Unlike many private term or whole life insurance policies, supplemental life insurance via your employer may allow you to raise or decrease coverage amounts at specific intervals, such as an open enrollment window.

If you have a policy through your work, your death benefit may automatically decrease when you reach a certain age, such as 70 or 75. If this happens, you only pay a portion of the premiums to match the decreased death benefit.

Is Insurance Coverage Guaranteed?

Regardless of your age or medical history, you are usually eligible for basic life insurance plans via your work. However, firms guarantee acceptance only up to a certain coverage limit, such as $100,000 or $1 million, for employee supplemental life insurance.

To buy more than that amount, you may be required to conduct a medical exam or demonstrate that you are not a danger to insure. Your firm may only provide guaranteed coverage during open enrollment periods.

Can an Insurance Company Buy Me Supplemental Life Insurance?

Many private insurers sell supplemental life insurance policies that can be used in conjunction with a group life insurance policy at work. Among the options are:

  • Life insurance, either term or permanent, for a partner or dependent
  • Burial insurance to cover final expenses
  • Coverage for accidental death and dismemberment (AD&D)

The Benefits and Drawbacks of Buying Supplemental Life Insurance from a Private Insurer

The mobility of private supplemental life insurance is one of its benefits. Your coverage is assured as long as you keep the policy and pay your premiums on time. It cannot be withdrawn just because you change employment, and you are not required to wait for an annual enrollment period to buy a policy.

You may be able to receive bigger limits and choose from a wider range of term or permanent policies depending on the insurer. However, because the risk is not dispersed across all employees, you may be scrutinized more than you would under an employer’s plan. Your age and health, or the health of the covered, may have a significant impact on eligibility and rates.

What Amount of Supplemental Life Insurance Should You Buy?

Everyone’s requirements for life insurance are unique. Examining your income and long-term goals is a smart method to determine how much supplemental life insurance you may require. The following factors should be considered:

  • Your partner and children: Do you have (or do you intend to have) children or dependents? If you die, how would your partner combine child care and work? How much cash cushion will you need to adjust to your loss? Some insurance companies propose coverage of 10 to 15 times your annual pretax pay.
  • Higher education expenses: According to The College Board, the typical year of tuition and fees at a four-year university can range from $10,700 to $30,800. If you intend to pay for someone’s higher education in the future, you should budget for this as well.
  • Mortgage, auto loan, and credit card debts
  • Funeral and burial expenditures can reach $8,500 on average, according to the National Funeral Directors Association.

An online insurance calculator is another useful tool for determining how much life insurance you require.

What is the Cost of Supplemental Life Insurance?

Supplemental life insurance through your employer may be more expensive than policies purchased on the open market, but this is dependent on where you work.

This is related, in part, to the method by which insurers calculate group life prices. Insurance firms look at aggregate data, such as the number of employees and their average age. Because this information is unique to each organization, premiums might vary greatly. For example, a 40-year-old employee at Company X may be able to buy a $500,000 insurance policy for $600 per year, but only $250,000 of coverage at Company Y for the same price.

The cost is also affected by your age. Rates for the policies via work are not generally locked in, which means premiums might rise with age. A $500,000 supplemental life insurance policy for an employee under the age of 30 at Company A, for example, costs $168 per year, whereas the same policy for an employee over the age of 70 can cost up to $6,000 per year.

When you buy term life insurance on the open market, your rates are often locked in for the lifetime of the policy, regardless of any health concerns you encounter along the way. As a result, if you’re younger, you could be better off purchasing life insurance via a private insurer and taking advantage of lower, fixed-rate policies.

The cost of supplemental goods on the open market is determined by criteria like as your age, medical history, insurer, and plan type. Term life insurance is generally less expensive than full (or permanent) life insurance.

Important Considerations Before Buying Supplemental Life Insurance

According to a 2018 report by the Society for Human Resource Management, eighty percent of employers in America provide supplemental life insurance to its employees. However, having the opportunity to buy it does not always imply that you should.

#1. Where to buy:

There are advantages and disadvantages to buying supplemental life insurance through your employer. You may prefer the convenience of signing up through work and paying premiums out of your paycheck. If you have an underlying health problem, it may be wise to take advantage of work-provided supplemental coverage. On the other hand, if you’re young and healthy, you might be able to use your energy to negotiate a lower-cost policy on your own.

#2. Alternatives:

Some employers provide supplemental whole life insurance plans in addition to the regular term alternatives. However, your age and health may preclude you from being eligible. If you want more comprehensive coverage, consider laddering your life insurance plans — acquiring numerous term life policies of varying terms — rather than purchasing a single supplemental product. If you desire certain features rather than greater coverage, you may be able to supplement your current policy with life insurance riders, such as accelerated death benefits, which allow you to withdraw a portion of your policy’s proceeds if you become terminally ill.

#3. Existing coverage:

Before selecting supplemental coverage, review your current policy. At no additional expense, your basic policy may already cover AD&D, spouse or dependent life insurance.

#4. Portability:

Although basic life insurance through work is often cheap, you may lose your coverage if you leave your job. Having your own policy, or one that can be taken with you, ensures that you are covered no matter where your job takes you.

Is Supplemental Life Insurance Worth It?

Supplemental life policy should be used in addition to, not in instead of, individual coverage. You can obtain additional insurance through a group plan, possibly at a discount, without fear of losing all coverage if you leave the group.

As a result, you may want to utilize multiple types of rules for different reasons. Consider utilizing individual insurance to cover necessary expenses (such as your mortgage or your children’s education money) and supplemental coverage for “nice-to-haves” (like a future inheritance for your grandkids). A life insurance calculator can assist you in determining your objectives and striking the correct balance.


Your family’s financial plan should include life insurance. When looking for a policy on your own, compare rates and terms from several different insurance companies.

Supplemental Life Insurance FAQs

What does supplemental life insurance cost?

The cost of supplemental life insurance varies substantially based on the extent of the claims payout and whether you obtain a discounted policy via your employer or another insurance firm. Other considerations include your health, age, and whether the insurance is a term or whole life.

Is employer supplemental life insurance worth it?

It can be, but you should examine your options before purchasing it via your employer’s plan. You may have additional options elsewhere and can select a policy that is tailored to your specific needs by researching what is available from independent insurance companies. A financial advisor or insurance specialist can assist you in weighing the benefits and drawbacks.


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