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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.
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.
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 be sure your policy includes portability so that you can take it with you if you change jobs.
The other option is purchasing a separate term life policy on your own. This has a few advantages. You can shop around for the best rate, and it’s portable – meaning it will stay in force as long as you keep paying the premiums, even if you switch jobs.
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:
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:
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.
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.
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.
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, if you leave your job, you’ll still be protected.
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