What is supplemental life insurance?
Quick Facts
Supplemental life insurance is a type of policy that provides additional coverage to your existing life insurance policy
You can purchase supplemental life insurance through your employer or an insurance company
Your debt, current income, and other factors will determine how much supplemental life insurance you should buy
If you have a family, then you know that they are your number one priority. You would do anything to ensure they are cared for, including protecting them financially. One way to do this is by purchasing supplemental life insurance.
Supplemental life insurance policies are a great way to protect your loved ones financially in the event of death. These policies provide extra coverage in addition to the amount of life insurance you have through your primary policy.
This article will explore key considerations when buying supplemental life insurance, including whether you can buy it through work or an insurance company. We’ll also discuss how much coverage you should get.
What is a supplemental life insurance policy?
Supplemental life insurance is an additional life insurance policy that you can purchase to supplement your coverage.
For instance, if you have a term life insurance policy with a death benefit of $500,000, you could purchase a supplemental life insurance policy with a death benefit of $250,000. Your beneficiaries would receive a total death benefit of $750,000 from both policies combined if you died.
One of the main benefits of supplemental life insurance is that it can help cover expenses that your regular life insurance policy may not cover.
For example, if you have a mortgage, credit card debt, or other loans, your regular life insurance policy may not cover the full amount. Supplemental life insurance can help in this situation — it can provide the extra coverage you need to ensure your loved ones are taken care of financially if something happens to you.
Another benefit of supplemental life insurance is that it can help cover expenses that arise in the event of your death, such as funeral costs.
The average cost of a funeral can range from $6,971 to $7,848, according to The National Funeral Directors Association (NFDA). It can be a huge financial burden for your loved ones if they are unprepared.
By purchasing supplemental life insurance, you can ease the burden and provide them with financial peace of mind.
How Supplemental Life Insurance Works
If you die while you have a supplemental life insurance policy, the death benefit from that policy will be tax-free to your beneficiaries.
They can use the money however they see fit. For example, they could pay off debts or final expenses or invest it and use the income to help cover living expenses.
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Can I buy supplemental life insurance through work?
In many cases, it is possible to buy supplemental life insurance through your employer. Most employer-sponsored life insurance provides a basic level of coverage, but this may not be enough to meet your needs.
You can buy a supplemental life insurance policy through your employer if you want additional protection. These policies are often more affordable than buying a separate policy.
They may also come with additional benefits, such as accelerated death benefits or conversion rights. However, it’s important to read the fine print before buying a policy, as there may be restrictions on how to use it.
For example, some policies only pay out a death benefit if you die while working for the company. If you leave your job, you may no longer be able to keep the policy or may have to pay higher premiums.
Basic vs. Supplemental Life Insurance
The main difference between basic and supplemental employee life insurance is the amount of coverage provided. Your employer typically offers basic life insurance as part of an employee benefits package.
It offers a death benefit equal to one or two times your annual salary.
While this may be enough for some, it often doesn’t provide adequate coverage for others. Supplemental life insurance can offer additional protection.
Types of Supplemental Life Your Employer May Offer
Your employer may offer a range of supplemental life insurance options, including:
Supplemental employee life insurance. Also known as “group term life insurance,” this type of coverage provides a set death benefit, which does not increase over time.
Supplemental accidental death and dismemberment insurance. This coverage typically provides additional benefits in the event of an accident, such as loss of limb or sight.
Spouse and child life insurance. Supplemental spouse life insurance coverage can help provide financial support to your spouse if something happens to you. Child life insurance covers the costs of raising and educating your children.
Term life insurance. This type of coverage lasts a specified period. It may be an affordable option if you only need coverage while you’re still working or until your debts are paid off. Find out the best term life insurance companies or learn more about term life insurance quotes.
Different employers and life insurance companies offer a variety of coverage options. Speak with your company about what types of supplemental life insurance are available to you.
Advantages and Disadvantages of Buying Supplemental Life Insurance Through Your Employer
There are many benefits to buying supplemental life insurance coverage through your employer. Some of these include:
Affordability. Many employers offer affordable group rates, which can be significantly cheaper than purchasing an individual policy.
Ease of purchase. It is often easy to buy supplemental life insurance through your employer. You can enroll online or through an automated phone system.
Convenience. Many employers offer a range of supplemental life insurance options that you can customize to suit your needs. This makes it easier to find the right coverage for your situation.
However, there are also some drawbacks to buying life insurance through your employer. For example:
Limited options. While many employers offer a range of supplemental life insurance options, you may not be able to purchase the coverage you need.
Restrictions. Some employers only offer supplemental life insurance to full-time or part-time employees, and others may have other restrictions or stipulations on the policy.
Additionally, your policy may only be valid while you are employed. If you leave your job or retire, you may no longer be able to keep your policy or may have to pay much higher premiums. Find out more about the problem with employer-provided life insurance.
Can I buy supplemental life insurance from an insurance company?
Yes, you can buy supplemental life insurance from an insurance company. However, it is good to note that not all insurance companies offer this type of coverage.
If you’re interested in purchasing supplemental life insurance, you need to shop around to find an affordable life insurance company that offers the coverage you need.
Some policies you may encounter include:
The advantages and disadvantages of buying supplemental life insurance through an insurance company include the following:
Advantages
Buying supplemental insurance through an insurance company can offer the following benefits:
Cost Savings
You can save money in the long run when you purchase a supplemental life insurance policy through an insurance company. Generally, this is because insurance companies have access to more competitive rates than most employers offer.
Furthermore, you may get discounts based on your age and health status that you would not be able to get if you purchased a policy through your employer.
Flexibility
Another advantage of buying supplemental life insurance from an insurance company is that you have more flexibility when choosing a plan. You can choose the amount of coverage that best fits your needs, as well as the type of policy that works best for your situation.
For example, some policies offer term life while others offer permanent or whole life options. This flexibility allows you to tailor the coverage to your needs and budget.
Portability
When you buy supplemental life insurance from an insurer, it is portable. If you change jobs or move out of state, your policy will still be valid and transferable with no interruption in coverage.
However, if you purchased a policy through your employer, it typically can’t be transferable. It could be canceled without warning if your job suddenly changes or ends.
Disadvantages
One potential downside of buying supplemental life insurance from an insurance company is that your application and policy may be subject to more scrutiny.
For example, the insurer may ask you for more detailed information about your medical history and lifestyle than your employer might, which can be a source of stress or anxiety.
In addition, it may take longer to get approved for coverage, and you may be required to pay higher rates.
How much supplemental life insurance should you buy?
There is no one-size-fits-all formula for deciding how much supplemental life insurance you need. The amount of coverage you purchase will depend on a variety of factors, including:
Debts. If you have large debts, such as a mortgage or student loans, buying additional life insurance to cover these costs can be a good idea.
Your dependents. If you have children or other dependents, you must ensure they are cared for if you pass away.
Your current income. You should also consider how much you earn each month and your other sources of income and savings.
Higher education. You may want to purchase additional coverage if you plan on paying for your child’s higher education expenses.
Other expenses. Other factors that may impact the supplemental life insurance you need include your retirement savings, lifestyle, or other major purchases you intend to make.
You can also use an online insurance calculator or speak with a qualified financial advisor to help you determine how much coverage you should purchase.
Ultimately, managing your risk and securing the future of your loved ones should be your top priority when deciding on the right amount of supplemental life insurance.
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Factors to Consider Before Buying Supplemental Life Insurance
Here are a few factors to consider when deciding whether or not to purchase supplemental life insurance:
Your current coverage. If you already have life insurance, it is important to assess how much coverage you currently have and determine whether or not additional coverage is necessary.
Portability. Another important factor to consider before purchasing supplemental life insurance is whether or not the policy would be portable if you left your job or moved out of state.
Your budget. Consider your current income, financial obligations, and future goals and expenses. Doing so will help you determine how much coverage you can afford.
There may be other options available that can offer the same level of protection without the need for supplemental life insurance. These could include laddering life insurance policies or adding riders to your existing life insurance policy. Find out what insurance riders are.
The Final Word on Supplemental Life Insurance
Supplemental insurance can provide additional coverage beyond your regular life insurance policy. You can purchase a supplemental life insurance policy through work or an independent insurance company.
Both options have pros and cons, and it’s important to weigh them before deciding. Additionally, you’ll want to consider how much coverage you need when deciding on a policy.
Frequently Asked Questions
What does supplemental life insurance mean?
Supplemental life insurance refers to an additional policy that provides additional coverage beyond what your employer-sponsored life insurance policy offers. It can cover many expenses, such as debts, funeral costs, and other financial obligations.
What does supplemental life insurance pay for?
Supplemental life insurance typically pays for various expenses, including:
Debts
Funeral costs
Mortgage payments
Education costs for your children and
Any other expenses that your loved ones will face in the event of your passing
While these are just some of the expenses that supplemental life insurance can help with, the exact coverage you’ll receive will vary based on your policy and provider.
Is supplemental life insurance worth it?
If you have a family or other dependents who rely on your income, then supplemental life insurance is probably worth it. It can provide you with additional coverage and financial security.
On the other hand, you may not need supplemental life insurance if you don’t have any dependents.
Do I need supplemental life insurance?
You may need supplemental life insurance if you have debt, dependents, or other financial obligations that need to be taken care of in the event of your passing. You should consider your current coverage, budget, and other factors when deciding whether or not to purchase a policy.
Does supplemental life insurance carry over?
It depends on your employer. Typically, supplemental life insurance policies are not portable and do not automatically carry over if you leave your job or move to another state. However, some employers may allow you to convert your policy to an individual policy if you need additional coverage.
What is the difference between supplemental life insurance and insurance riders?
Supplemental life insurance is a separate policy that provides additional coverage beyond what your regular life insurance policy offers. Conversely, insurance riders are add-ons to your existing policy that provide additional benefits or coverage.
While supplemental life insurance and insurance riders may offer similar levels of protection, the key difference is that supplemental life insurance is a separate policy, while insurance riders are part of your existing life insurance policy.
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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
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Written by
Rachael Brennan
Licensed Insurance Agent
Benjamin Carr was a licensed insurance agent in Georgia and has two years’ experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.
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Reviewed by
Benji Carr
Former Licensed Life Insurance Agent
