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Supplemental life insurance

This coverage is convenient, cheap and accessible to almost anyone – but you don't want to rely on it.

There are two types of employer-sponsored life insurance plans. Group life insurance is a no-brainer because your employer pays the premiums. But it’s a small amount, which is why many companies offer supplemental life insurance. This optional coverage is easy to get, but it’s limited.

What is supplemental life insurance?

Supplemental life insurance is an additional term life insurance policy that complements the coverage offered – and paid for – by your employer. There are two ways to get supplemental life insurance: through your employer, or privately.

Get group life insurance through your employer

Many employers provide life insurance as part of a benefits package. It’s called group insurance, and it usually only offers a base level of protection, such as $100,000. This may be enough if you’re single and/or have few financial responsibilities, but if you have children, a mortgage or debt, it will probably leave you underinsured.

That’s where supplemental insurance comes in, and your employer may give you the option to purchase additional coverage. As with group life insurance, the premium payments are deducted from your paycheck, so there’s little admin on your part.

Supplemental insurance is calculated as a multiple of your annual salary. Your group’s supplemental life insurance will offer coverage up to a specified amount of times your annual salary, for example, five times your annual salary. So if you make $50,000 a year, you’ll be eligible for up to $250,000.

Most supplemental life insurance offers a specified amount of guaranteed issue. That means you can qualify for that amount of additional life insurance without having to take a medical exam. If you go over that amount, you’ll be required to either take a medical exam or complete a health questionnaire to be approved for coverage.

Supplemental life insurance through your employer is tied to the job, so ensure your policy includes portability so that you can take it with you if you change jobs.

Buy a private life insurance policy on your own

The other option is independently purchasing a separate term life policy. This has a couple advantages. You can shop around for the best rate, and it’s portable – meaning if you switch jobs, you’ll stay insured as long as you keep paying the premiums.

What happens to my supplemental life insurance if I leave my job?

Employer-sponsored policies aren’t always portable. So, if you leave your job or retire and portability isn’t included, your coverage will be terminated and you’ll need to apply for another policy independently or with your new employer.

If your policy isn’t portable, relying on your employer for life insurance is risky for a couple of reasons:

  1. If you lose your job unexpectedly, you’ll be left uninsured until you take out a new policy.
  2. Most people are unlikely to stay with the same company for their entire career. If you switch jobs, you’ll need to reapply for a policy with your new employer, or shop around for an individual life insurance policy. This may not seem like a big deal, but specific health conditions could make it hard to find affordable coverage — or qualify for coverage at all. Also, the cost of life insurance rises with age, so older applicants can expect to pay higher premiums.

What does supplemental life insurance cover?

Supplemental life insurance is similar to group life insurance, but it has more limitations. If you’re planning to buy an employer-sponsored policy, read the policy carefully so you know exactly what coverage you’re getting.

Typically, supplemental life insurance offers the following forms of coverage:

  • Accidental death and dismemberment (AD&D). Some supplemental policies cover accidental death and dismemberment. AD&D pays out a death benefit only if the employee dies, loses a limb or loses their hearing or sight as a result of an accident.
  • Burial insurance. Other supplemental policies cover only the funeral and burial costs of the employee — which means beneficiaries don’t get a payout. Burial policies usually offer coverage of up to $10,000.
  • Spouse, domestic partner and child insurance. Some companies let their employees purchase supplemental life insurance for spouses, domestic partners and children. These policies often extend the same limits at lower coverage amounts.

Remember, supplemental insurance is designed to complement your existing coverage. So, if you pass away, your group life insurance policy will pay out a death benefit to your beneficiaries.

Supplemental life insurance pros and cons

Pros

  • Employers get group life insurance rates. If you’re in poor health, this may work out to be cheaper than taking out a traditional term life policy. Your employer might even subsidize part of your premiums.
  • No medical exam. Employer-sponsored plans usually don’t require a medical exam. But if you’re purchasing a larger policy amount, you may need to fill out an ‘evidence of insurability’ health questionnaire or take a medical exam.
  • Convenience. Your employer handles the paperwork and deducts the premiums from your paycheck.

Cons

  • Coverage isn’t always portable. If you leave your job or retire, you can’t take your coverage with you unless your policy includes portability.
  • Lack of customization. You won’t have the option to choose which add-ons are riders are included in your policy.

    Is supplemental life insurance worth it?

    It depends on your coverage needs. If your employer can subsidize a supplemental policy at a low rate and you need a higher level of coverage than their standard policy, it may be worth taking them up on the offer. But if you’re planning to move companies or retire in the near future, you’re better off buying a policy on your own, and supplementing your employer-sponsored coverage that way.

    The same goes if you want to customize your coverage with riders, such as an accelerated death benefit rider.

    Compare life insurance companies on your own

    If you want to make sure you can bring your coverage with you if you switch jobs, use this interactive table to compare individual life insurance policies.

    Name Product Issue age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
    Policygenius - Life Insurance
    18 - 85 years old
    $50,000
    $10,000,000
    10, 15, 20, 25, 30 years
    Depends on provider and policy
    Compare 12+ top insurers side-by-side to get the best possible deal, and shop return of premium policies online.
    Ladder
    20 - 60 years old
    $100,000
    $8,000,000
    10, 15, 20, 25 or 30 years
    No, for coverage up to $3M
    Apply for term life insurance online without the medical exam. Get an instant decision and adjust your coverage at no charge.
    Sproutt
    18 - 60 years old
    $50,000
    $4,000,000
    5, 10, 15, 20, 25 and 30 years
    No
    Compare 40+ insurers and apply online to get the lowest possible price — no medical exam required.
    Everyday Life
    18 - 70
    $100,000
    $10,000,000
    10, 15, 20, 25, 30, 35 and 40 years.
    No
    Ladder multiple life insurance policies to save on the coverage you need for all your debts.
    Bestow
    18 - 60 years old
    $50,000
    $1,500,000
    10, 15, 20, 25, 30 years
    No
    Get a quote and apply.
    loading

    Compare up to 4 providers

    Bottom line

    Supplemental life insurance has its upsides. It’s convenient, cheap and most people can get insured without taking a medical exam. But it’s tied to your job and comes with a few caveats.

    It’s a good idea to bulk up your life insurance coverage by comparing insurers and purchasing a policy on your own. That way, you’ll still be protected if you change jobs.

    Frequently asked questions

    What’s group life insurance?
    Group life insurance is a term life insurance policy that an institution such as your employer, Veterans Affairs, or the AARP offer. The institution is the policyholder and sets the limits for the policy, and you get to choose the beneficiary.

    Group life insurance usually offers basic protection at no cost to you. If you want more coverage, consider purchasing supplemental life insurance.

    What is spousal supplemental life insurance?
    If you buy supplemental life insurance through your employer, you may have the option to purchase a policy for your spouse or domestic partner. Typically, this coverage is offered at 50% of your coverage amount.

    What is open enrollment?
    In the US, open enrollment is the time of year when employees can make changes to their elected benefits — such as their supplemental life insurance.

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