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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.

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.

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 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

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.

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:

  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 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 age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
Prudential
18 - 75 years old
$100,000
$10,000,000
10, 15, 20, 30 years
Yes
Customize your term life insurance with a long list of life and disability riders. Get a free quote on Policygenius.
Transamerica
18 - 75 years old
$25,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase a policy worth anywhere from $25,000 to $10 million, with the option to skip the medical exam. Get a free quote on Policygenius.
MassMutual
18 - 80 years old
$2,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase term life insurance up to age 80 with Finder's #1 ranked company. Get a free quote from this A+ rated insurer on Policygenius.
AIG
AIG
20 - 85 years old
$5,000
$2,000,000
10, 15, 20, 25, 30, 35 years
Yes
Buy term life insurance all the way up to age 85, and choose a policy that lasts up to an incredible 35 years. Get a free quote on Policygenius.
John Hancock
18 - 65 years old
$25,000
$1,000,000
10, 15, 20 years
Depends on policy
Score a low rate on term life insurance with discounts and rewards for your healthy habits. Get a free quote on Policygenius.
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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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