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Supplemental life insurance

May 2, 2023 5 Minute Read

Life insurance coverage is a common workplace perk. In fact, 23% of survey respondents in a 2022 LIMRA study indicated they had life insurance through work, while 18% of respondents had both group life coverage through work plus an individual policy.

While life insurance policies through work or other organizations can provide helpful financial support for loved ones, it’s often not enough. That’s where supplemental life insurance comes in.

What is supplemental life insurance?

Supplemental life insurance is an optional offering above and beyond a group life insurance policy that can expand current coverage to fill gaps. Many group life policies have low coverage amounts that are one or two times someone’s salary.

For example, if you make $50,000 a year, your company may pay for a life insurance policy that would provide your loved ones with a $50,000 death benefit if you pass away while you’re employed by the company. If you also purchase a $100,000 supplemental life insurance policy, your loved ones would then receive a total death benefit of $150,000 between the two policies.

How does supplemental life insurance work?

Supplemental life insurance is typically offered through an employer and you can sign up when you enroll in annual benefits. Some other large groups, like unions or membership organizations, may also offer life insurance and supplemental coverage.

Because supplemental coverage is viewed as an extension of another life insurance offering, the eligibility criteria may differ from a standalone life insurance policy. You may not have to answer health questions or submit to a medical exam up to a certain coverage amount. Plus, you may be able to secure a good premium rate and have the simplicity of your employer taking the money that’s due directly from your paycheck, making keeping on top of your premiums easy.

If you pass away while the policy is active, your loved ones will receive the death benefit payment at the face value amount of your group life and supplemental life policies. However, if you separate employment, you’ll likely lose the coverage and need to work with the insurer to continue coverage or look to a private insurer to secure a new policy.

Where can you buy supplemental life insurance?

There are several ways to get supplemental life insurance coverage.

Through an employer or organization

If you have an existing group life insurance policy through an organization or employer, you may be able to add supplemental coverage with the same insurer. You can choose supplemental coverage for yourself or get life insurance on a spouse or child if your organization offers it.

You may also have an option for supplemental accidental death and dismemberment (AD&D) coverage which can provide a payment if you’re killed or seriously injured in an accident.

Your company’s HR or benefits department is best equipped to answer questions about what type of supplemental benefits are available and how to qualify.

Through a private insurer

While supplemental life insurance through work can fill a coverage gap, it still creates a situation where you’d be without coverage if you leave your job. On the other hand, getting a life insurance policy through a private insurer means your insurance policy is yours, regardless of where you’re employed.

A key benefit of purchasing life insurance through an insurer that’s not affiliated with your employer is the abundance of policy types and coverage amounts you can choose. You’ll find policies to meet your needs from term life insurance that lasts anywhere from 10 to 30 years to a final expense policy that’s intended to cover only end-of-life expenses. Life insurance companies also offer riders that enable you to further customize your policy, whether you want to protect against inflation or get a smaller life insurance policy on a child.

A licensed insurance agent can help you identify the best policy and coverage amount to fit your unique financial and family needs.

What are the downsides of getting supplemental coverage through an employer or organization?

Getting supplemental coverage through an employer is a straightforward process. But simplicity comes at a cost. Before you choose to sign up for supplemental coverage through work, it’s important to recognize potential downsides, including:

  • Limited portability: You’ll generally lose supplemental life insurance coverage when you leave your job, although in some circumstances you may be able to work with the insurer directly to continue coverage.
  • Fewer options: Many life insurance policies through organizations are term, not permanent. If you want to secure lifelong coverage, you may need to work with a private insurer.

How much supplemental coverage do you need?

When calculating life insurance needs, you’ll want to consider how much money your loved ones would need to replace income, cover outstanding debts, like a mortgage or credit card, and cover funeral expenses. Depending on the number of dependents you have, you may need more extensive coverage to provide financial support in your absence.

Since you’re assessing only supplemental coverage needs, be sure to subtract the amount of employer-provided life insurance coverage from the total.

eFinancial’s life insurance calculator can help you determine the optimal amount of supplemental coverage for your needs and situation.

Explore supplemental life options through eFinancial

Whether or not you have group life through an employer, a private life insurance policy can be a smart move. A licensed insurance agent can help you understand available options for supplemental life insurance and choose the policy and coverage amount that best meets your needs.

FAQs about supplemental life insurance policies

How much does supplemental life insurance cost?

The cost of supplemental life insurance will vary depending on the policy type, coverage amount, and insurer you choose. Rates will also vary if you buy supplemental life insurance through your employer or through an independent life insurance company. A licensed insurance agent can help you understand estimated premium payments for a policy that meets your needs.

Does everyone need supplemental life insurance?

Supplemental life insurance makes sense for anyone with dependents who rely on them financially and whose group coverage isn’t sufficient to meet those needs. Supplemental life insurance can bridge the gap with employer-sponsored life insurance to assist loved ones with expenses.

Can you take supplemental life insurance with you if you leave your job?

Some insurers may allow you to convert your supplemental life insurance to an individual policy if you separate employment. Otherwise, you’ll lose supplemental life insurance coverage when you leave your job.

Can you cash out supplemental life insurance?

Since most supplemental life insurance is term coverage, there is no cash value to remove from the policy. If your supplemental life insurance policy is permanent life insurance, you may have the option to cash out or surrender the policy, thereby removing its cash value and ceasing the death benefit.