Life Insurance

What Is Supplemental Life Insurance?

During open enrollment season for employee benefits, you may notice your employer offers supplemental life insurance. This benefit adds more coverage to a standard employee life insurance policy. Understanding supplemental life insurance can help you put the right type and amount of coverage to support your loved ones.

supplemental life insurance

Life insurance is a way to support your loved ones after your death financially. It pays a specified amount, the death benefit, to the people you name as beneficiaries. This benefit can help replace your lost earnings so your family can work toward its financial goals in your absence.

Many employers recognize the importance of life insurance: In 2022, life insurance was available to 57% of people who worked for private companies and 83% of people employed by state or local governments.

Basic group life insurance coverage may not be the only type available to you, though. Employees who want more coverage than their employer’s basic plan provides may have the option to purchase supplemental life insurance to expand their coverage. Keep reading to learn how supplemental life insurance works.

What Is Supplemental Life Insurance?

Supplemental life insurance is an optional insurance benefit offered by some employers. It’s sometimes called voluntary life insurance or employee-paid life insurance. These policies add more coverage to a basic group life insurance policy.

Voluntary life insurance offerings allow employees to customize their coverage to suit their individual needs. While options can vary from one company to another, employees may be able to purchase supplemental coverage that:

  • Increases their death benefit
  • Adds a death benefit for their spouse and/or children
  • Provides an additional benefit in the event of an accidental death
  • Helps cover funeral and burial expenses

How Does Supplemental Life Insurance Work? 

Generally, employees can sign up for supplemental life insurance during their first weeks on the job. Employers may allow existing employees to enroll in supplemental life insurance during the annual open enrollment window, which takes place in November for many companies.

Unlike basic life insurance policies, which employers may provide at little or no cost, employees typically pay their own supplemental life insurance premiums. The cost can vary from one workplace to another. Insurers consider various factors when setting group life rates, including the number of employees covered by the plan and their average age. 

Types of Employee Supplemental Life Insurance 

Employers may offer a few common types of supplemental life insurance coverage. As an employee, you may have the option to increase your death benefit, get coverage for family members, or buy extra coverage for accidental death or final expenses.

Adding More Coverage 

Basic group life insurance policies tend to have reasonably low coverage amounts. In 2021, the median basic coverage offered by employers was either 1x the employee’s annual earnings or a flat death benefit of $20,000. This amount may be enough coverage for some people’s needs, but others may want to buy more.

Employees may have the option to purchase additional life insurance up to the employer’s maximum coverage. For example, an employer might offer up to $500,000 in supplemental life insurance in increments of $10,000. Note that a medical exam may be required to add more coverage, depending on the plan and desired amount. Check with your employer’s human resources department for details.

Adding More People 

Employers providing group life insurance coverage may only offer this benefit to their employees, not to their family members. But some companies may give employees the option to buy additional coverage for their spouse and children.

Supplemental spouse life insurance adds coverage for an employee’s spouse or sometimes their domestic partner. Available coverage amounts may be lower than for employees but may supplement a spouse’s other life insurance policies. Supplemental child life insurance adds a small amount of coverage, such as $10,000, for employees’ eligible dependents.

Accidental Death and Dismemberment 

Supplemental accidental death and dismemberment (AD&D) insurance provides a separate death benefit if an employee dies due to a covered accident. It also offers coverage for non-fatal accidents that cause specific serious injuries, such as the loss of a limb or loss of sight.

Depending on their age, employees may see AD&D insurance as a worthwhile addition to their life insurance policy. Unintentional injuries such as car accidents, falls, and drowning are the 4th most common cause of death in the United States and the leading cause of death for Americans under the age of 44.

Final Expense, or Burial Insurance

Final expense insurance offers an additional death benefit to cover end-of-life costs. The death benefit amount can vary, ranging from around $5,000 to $25,000. This benefit helps cover the cost of a funeral and burial, which averaged $7,848 in 2021.

Employees may want to purchase this additional policy to set aside specific funds for end-of-life expenses. Therefore, beneficiaries can pay for funeral costs, outstanding debts, probate fees, and other related expenses without dipping into their savings or the proceeds of other life insurance policies. 

When to Consider Supplemental Employee Life Insurance  

There are many reasons why people may consider getting supplemental life insurance via their employer rather than a private company. Some advantages of employer supplemental life insurance include:

  • Lower premiums: Employers’ group life prices may be lower than the rates for comparable individual policies from a private company. Some employers may subsidize the premiums as a benefit to employees.
  • Convenience: Since employers choose the insurance company and plan options, enrolling in supplemental coverage can be as easy as filling out paperwork. Because premiums accumulate through payroll deductions, employees don’t need to worry about forgetting a payment.
  • Limited underwriting: Employees may be able to buy a certain amount of supplemental coverage without answering health questions or undergoing a medical exam. This quality could appeal to employees with pre-existing health conditions and those who prefer not to have a medical exam. Keep in mind that undergoing medical underwriting varies by plan and insurer.

When to Not Consider Supplemental Employee Life Insurance 

While there are advantages of employee supplemental life insurance, there are also some potential disadvantages to keep in mind. Some reasons employees choose not to get supplemental coverage from their employers include:

  • Linked to employment status: Like other workplace benefits, supplemental life insurance typically ends when employees change jobs, retire, or get laid off. If you don’t plan to stay at the same job long-term, you may prefer coverage independent of your employer.
  • Limited coverage options: Supplemental employee life insurance allows employers to decide what coverage options to offer. For example, some employers might not offer certain types of coverage, such as supplemental spouse life insurance or accidental death and dismemberment insurance.
  • Limited coverage amounts: Employers may cap the supplemental life insurance coverage available. Depending on the employer, this limit could be a set dollar amount or a percentage of an employee’s salary.

Alternative to Supplemental Employee Life Insurance: Buying a Policy Outside of Work 

Employer-sponsored supplemental life insurance isn’t the only way to add coverage above and beyond an employer’s basic group life plan. Employees interested in additional coverage could also look into policies sold by private insurance companies.

If you want more coverage than your employer provides, you may consider buying an individual life insurance policy from a private company. Several types of policies are available to meet varying needs and preferences. Whichever type you choose, you own the coverage and can keep it when you change jobs. 

Individual life insurance policies often require medical underwriting. Insurers collect medical information as part of the application process and may charge higher premiums to applicants with certain health conditions such as diabetes or high blood pressure. In some cases, they may deny coverage. 

People who already have an individual life insurance policy but want more or different types of coverage could consider buying an insurance rider. Riders, also known as endorsements, are add-on coverages that change the terms of a policy. Some common types of riders include:

  • Spousal riders, which add coverage for your spouse
  • Child riders, which provide coverage for children
  • Accidental death riders provide an additional death benefit if you die because of an accident

Can You Have More Than One Life Insurance Plan? 

It’s possible to have numerous life insurance plans. People with employer-sponsored basic or supplemental life insurance coverage are welcome to apply for other plans outside of work. However, insurance companies may limit the total amount of coverage you can buy.

Insurance companies may consider your existing life insurance coverage when deciding how much more coverage you can buy. The total coverage a person can hold across multiple plans may vary depending on their age, health, and financial situation.

When someone has a group life insurance policy and one or more private policies, each plan is separate. Their beneficiaries could claim the full death benefit from each plan, per the policy terms.

Common Private Life Insurance Types 

When you buy a policy outside of work, you can choose from various types of life insurance. Some private life insurance policies offer coverage for a predetermined number of years, while others offer lifelong coverage.

Basic Term Life Insurance 

Basic term life insurance, also known as level term life insurance, provides coverage for a set number of years. Insurers sell varying term lengths ranging from 1 to 30 years. The death benefit remains the same for the length of the policy.

This type of insurance could be a good option for people who have a temporary need for a stable amount of coverage. For example, you might buy a term life insurance policy to replace lost income if you pass away during your working years.

Decreasing Term Life Insurance 

Like basic term life insurance, decreasing term life insurance offers coverage for a predetermined period, such as 5, 10, or 20 years. However, the death benefit decreases over the policy term, often annually. 

Decreasing term life insurance could be a good option for people who expect to need less coverage in the future. You might buy this type of policy if you want your beneficiaries to be able to settle outstanding debts, such as car loans or mortgage loans.

Convertible Term Life Insurance 

Standard-term life insurance policies provide coverage for a set number of years, and the coverage expires at the end of the term. But some term life insurance policies are convertible, meaning the policyholder can switch to a permanent life insurance plan without completing a medical exam.

This type of policy could appeal to people who want the flexibility to extend their coverage if their needs change. This group of people could include people who are in good health now but worry they might not be eligible to buy a permanent life insurance policy later.

Whole Life Insurance

Whole life insurance is a type of life insurance designed to stay active for an insured person’s entire life. In addition to the death benefit, it offers a savings element that grows based on dividends paid by the insurance company.

This type of insurance might be a good choice for people who expect to need the same coverage for their entire lives, such as parents with children who require lifelong care. Further, some people may purchase whole life insurance to build an inheritance.

Universal Life Insurance

Universal life insurance, also known as adjustable life insurance, is a type of permanent life insurance that combines lifelong coverage with a savings component. Policyholders can increase or decrease the death benefit and monthly premiums if their needs change.

This type of policy may be a good option for people who need long-term life insurance coverage but want the flexibility to adjust their coverage if their needs change. This group could include people using their life insurance for estate planning.

Who Should Buy Supplemental Employee Life Insurance? 

Employee supplemental life insurance may be a convenient, budget-friendly way to add more coverage to a basic group life insurance policy. For employees with certain health conditions, it may be a way to get coverage that wouldn’t otherwise be available. But employers’ supplemental life insurance offerings may be limited, and the coverage may end when employees leave their jobs. 

Talk to a life insurance agent for help deciding if buying supplemental life insurance through work makes sense for your situation.