Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
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.
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 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.
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.
Pros and cons of supplemental life insurance
- 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.
- 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.
What happens to my 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:
- If you lose your job unexpectedly, you’ll be left uninsured until you take out a new policy.
- 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 certain 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.
Compare individual life insurance companies
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 providers and purchasing a policy on your own. That way, if you leave your job, you’ll still be protected.
Frequently asked questions
More guides on Finder
Whole life insurance vs. guaranteed life insurance
Guaranteed life insurance often has lifelong coverage just like whole life insurance, but comes with a high price tag since there is no medical exam required.
Whole life insurance vs. variable life insurance
Two permanent life insurance policies that provide lifelong coverage, though variable life is a riskier investment option than whole life.
Teladoc review 2020
Find out how this telemedicine app stacks up against its younger competitors.
Compare tuition insurance
If your child gets sick or injured and has to take time away from college, tuition insurance can reimburse you for what you already paid.
Pawp pet insurance alternative review Dec 2020
Get $3K in rainy-day funds for up to six of your lovable woofs and meows.
Do I qualify for unemployment?
Get the financial help you need as you search for a new job.
Finder takes a deep dive in search of recession-proof businesses and industries, looking into both businesses that are succeeding in spite of the current pandemic and industries that performed well during the Great Recession
Workers’ compensation vs. life insurance
These coverage options serve different functions but have one benefit in common.
Should you let Amazon deliver goods inside your garage?
While it’s incredibly convenient, you’ll need the right tech to be eligible for this service.
How much does health insurance cost?
Most working Americans pay around $1,489 in premiums each year. Compare costs now.
Ask an Expert