Life insurance may help protect your loved ones’ finances when you pass away, and many employers offer subsidized life insurance policies to their employees. Supplemental life insurance coverage is a type of optional group life insurance coverage available through many employers on top of standard group life plans. It might help you get the coverage you need without purchasing coverage from a life insurance company. If you’re new to supplemental life insurance, Bankrate’s insurance editorial team explains what supplemental life insurance is, who might benefit from it and how to buy it.

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What is supplemental life insurance?

Supplemental life insurance refers to a life insurance policy in addition to your basic life insurance coverage. Most commonly, this is life insurance that is offered by the company where you work, on top of the free or low-cost group policy that many employers offer as part of their benefits package. Supplemental life insurance may be useful if the standard group life options offered by your employer are insufficient for your life insurance needs.

A supplemental policy may come through your employer, but it doesn’t always have to. It may be worth considering depending on your life insurance needs and the coverage options available through the basic group life policy. Supplemental life insurance is sometimes focused on a particular need. For example, some people may buy a supplemental policy to pay for funeral and burial costs.

How does supplemental life insurance work?

If you purchase your supplemental coverage through your work, it might be helpful to review how it is structured. Employers often offer group life insurance policies. Typically, these policies are free to the employee or heavily discounted. This means that the death benefits may also be lower than those you could get with an individual policy. Additionally, employer-sponsored life insurance usually doesn’t require a medical exam, so you might be able to get coverage without being in excellent health. However, if you find that you need more coverage than your employer’s standard group policy offers, you might consider purchasing employee supplemental life insurance.

If you’re lucky enough to have free life insurance offered through your company or your spouse’s company, Bill Suneson, co-founder and president of Next Generation Insurance Group in Boston, suggests considering taking it. “Typically, employers offer (their employees) a term life policy,” he says. “The key advantage is that you don’t have to show proof of insurability.”

Purchasing supplemental life insurance through your employer has a number of benefits, but there are some potential disadvantages to be aware of. Many of these pros and cons apply to both standard group life policies and supplemental coverage.

Benefits Drawbacks
Premiums are subsidized by the employer, so you usually pay less than you would for a private policy You may be limited in how much coverage you can add
You may be able to receive coverage without a medical exam If you leave the company, you likely will not get to keep your policy
Employer-sponsored policies often lack riders which may be used to personalize your coverage

How to buy employee supplemental life insurance

If your standard employer-sponsored life insurance policy does not sufficiently meet your family’s financial needs, you may want to supplement it with another plan. Here are a few things to consider when purchasing supplemental life insurance through your employer:

1. Consider your dependents’ expenses

A common reason to purchase life insurance is to financially support your loved ones after you pass away. When thinking about how to supplement your employer-sponsored life plan, you might want to consider your dependents’ financial needs.

For example, if you have young children, you may want to factor in the cost of their education. But if your kids are grown and out of the house, you likely wouldn’t need to include that in your calculation. You might also consider your current savings. If your spouse could rely on your savings to continue living their current lifestyle, you may need to supplement with less coverage than if you had very little money saved.

2. Assess your coverage needs

When choosing life insurance coverage, you may want to consider two key factors: the total amount of your current debts, like your mortgage, car payments, student loans and credit card debt; as well as your share of future household expenses, such as the cost of your childrens’ future college tuition.

If you’re unsure how much supplemental insurance you need, consulting a licensed life insurance agent for a needs analysis may be a smart move.

3. Check what employer-sponsored options are available

Once you’ve determined how much coverage you need, you may want to look into what your company offers in the way of low-cost supplemental coverage. You can talk with your human resources representative about whether this coverage can be converted in the future. Some employers cancel your policy as soon as you leave the company, but some may allow you to take your policy with you.

Keep in mind that purchasing supplemental life insurance through your employer may limit your coverage choices. If you could benefit from niche coverage options such as coverage for long-term care or terminal illnesses, you likely won’t find that with your employer and may want to look at individual plans and riders. You may be able to purchase an individual plan that isn’t tied to your employment status and fits your needs and price point.

4. Consider the terms of the policy

When choosing a supplemental life insurance policy, it may be helpful to consider the terms of the plan. For example, you might be able to get a policy that is portable, which means you can take it with you if you change companies.

Types of supplemental life insurance

Your employer likely offers a few different types of supplemental insurance. These options may include:

  • Supplemental employee life insurance: This type of coverage may increase your coverage as an employee.
  • Supplemental family life insurance: Supplemental spouse life insurance may provide a death benefit in the event that your spouse passes away. Supplemental child life insurance typically covers the death of your child or qualifying dependent.
  • Supplemental accidental death and dismemberment: If you die or lose a limb in a covered accident, this policy could pay out to your beneficiaries in case of death, or to you in case of dismemberment.

As you can see, you may be able to tailor supplemental coverage to fit your needs to an extent. If you want to cover situations beyond these, you may want to look into individual life insurance policies and riders.

How much supplemental life insurance should I get?

If you decide you would like to purchase a supplemental life insurance policy, you’ll likely have to complete the process with your company’s human resources department.

To decide how much supplemental coverage you need, you may want to talk with a licensed insurance agent. It may be helpful to note that many people multiply their existing salary by five to eight times to reach a coverage level that works for their dependents. You might want to keep in mind the financial obligations your dependents will be left with after your death. Do you have a mortgage? Do you plan on paying for college tuition? To reach a potential coverage amount, you might add up these costs and subtract a spouse’s salary or other assets.

Before purchasing supplemental life insurance, you may want to decide whether you want your policy to be tied to your employer. In many cases, your company will terminate your coverage if you get a new job. If you want coverage for specific situations, such as terminal illness coverage or long-term care coverage, you may want to consider purchasing an individual plan with a rider or two.

Frequently asked questions

    • While employer-offered supplemental life insurance may be a quick way to increase your coverage, the options tend to be fairly limited. If you want a policy that allows the death benefit to grow over time, you might want to consider a whole life insurance policy. Or, if you’re looking for a policy that grants you greater flexibility when it comes to your premium payments, a universal life insurance policy might be a better option. If you just need coverage for a set period of time, but don’t want that coverage to be tied to your employment status, individual term coverage may be best for you.
    • It might be, but you may want to weigh your options and consider individual life insurance options before committing to supplemental coverage through your employer. You might have more flexibility elsewhere and may find a policy type that better fits your particular circumstances with a reputable life insurance company. A financial consultant or insurance professional may be able to offer more personalized guidance if you’re unsure about the best way to increase your life insurance coverage.
    • The cost of supplemental life insurance varies greatly depending on the coverage amount, as well as whether you get a subsidized policy through your employer or another insurance company. Other factors that may play a role include your health, age and the specifics of the policy type. Typically, supplemental life insurance through an employer will cost less than a similar individual policy.
    • Supplemental life insurance is increased coverage for a group or employer-sponsored policy. Life insurance riders are additional coverage options that you may be able to purchase in addition to an individual life insurance policy.
    • Typically, your supplemental life insurance will end as soon as you leave your job. However, in some cases, your employer may allow your coverage to carry over — or “port” — for some time after. The best way to find out is to speak with your human resources department.