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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.

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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.

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.

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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.

Your employer may give you the option to purchase extra 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. Depending on the value of your policy, this could be anywhere between 1x and 5x your salary.

Say you earn $50,000 a year, and your group life insurance is 2x your annual salary ($100,000). If you choose to take out a supplemental policy that’s 4x your annual salary ($200,000), you’ll be covered for 6x your annual salary, which comes to $300,000.

Depending on the insurer your company works with, you may be able to buy supplemental life insurance for not only yourself, but also your spouse and children.

Supplemental life insurance through your employer is tied to the job. If you leave, your policy will lapse.

Privately

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 overage of up to $10,000.
  • Spouse or domestic partner insurance. Some companies let their employees purchase supplemental life insurance for spouses and domestic partners. 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

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 large policy, you may need to fill out an ‘evidence of insurability’ health questionnaire.
  • Convenience. Your employer handles the paperwork and deducts the premiums from your paycheck.

Cons

  • Coverage isn’t portable. If you leave your job or retire, you can’t take your coverage with you. This may pose a problem if you’ve developed a medical condition.
  • Group plans are one-size-fits-all. Young, healthy non-smokers may be able to score a better rate with an individual policy.
  • Lack of customization. You can’t dress up your policy with riders, such an accelerated death benefit.

What happens to my insurance if I leave my job?

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

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 wit 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

Name Product Issue Ages Minimum Coverage Maximum Coverage Medical Exam Required
Bestow
21 - 54 years old
$50,000
$1,000,000
No
Affordable 10- and 20-year term life insurance policies with instant quotes and no medical exams.
LadderLife™ Life Insurance
20 - 60 years old
$100,000
$8,000,000
No
Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.
Policygenius
18 - 85 years old
$10,000
$10,000,000+
Depends on provider and policy
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
Fabric
25 - 60 years old
$100,000
$5,000,000
No
Get affordable term life insurance with accelerated underwriting or no-exam coverage up to $1,000,000. Available in all states except CA, NY and MT.
Haven Life
18 - 64 years old
$100,000
$3,000,000
No
Customized term life insurance policies up to $3 million, no medical exam for certain applicants.
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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 providers and purchasing a policy on your own. That way, if you leave your job, you’ll still be protected.

Frequently asked questions

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