Supplemental life insurance, which is available through work or privately offered policies, provides additional coverage to your primary life insurance policy. It could also be expressed as an additional coverage amount, specialized standalone policies, or riders.
Before deciding whether or not to apply for supplemental life insurance, check your existing policies to see exactly what is covered, how much you’re paying, and how the payouts work.
What is supplemental life insurance?
Supplemental life insurance (also known as voluntary life insurance) is coverage you add to a traditional life insurance policy or basic life insurance policy through work. It expands your existing life insurance coverage to cover your family’s individual financial needs in the event of your death.
How to get supplemental life insurance
Your employer
Many employers offer basic life insurance or group life insurance as part of their overall benefits package for free or at a low cost. However, its death benefits tend to be minimal at $25,000 or one to two times your salary. That amount is typically insufficient to support your family after you pass away. That’s why employers also offer supplemental life insurance, usually at an additional premium.
Check with your human resources representative to learn more about group or supplement insurance offered by your company. Be sure to inquire about coverage details and exclusions before opting into a policy at work. You may find that it may not fit your needs.
A private insurance company
Whether or not your employer offers supplemental life insurance, it’s worth looking into private options as well. Private options often provide a broader range of coverage than most employer-sponsored plans, and you can take a private plan with you from job to job. Group life insurance is only good for as long as you work for that company.
Additionally, if you’re young and healthy now but change jobs in a decade, the cost to purchase your own supplemental life insurance policy down the road could be far higher. If you already have a life insurance policy through a private carrier, you may be able to add supplemental coverage to your existing policy for an affordable premium.
Types of supplemental life insurance
Supplemental life insurance comes in different forms. The types of insurance offered vary based on the employer and insurance company.
Permanent life insurance
A permanent policy offers lifelong coverage and a cash value component, which grows your policy’s value over time. However, these policies can be significantly more expensive than term policies. It’s worth noting that if you’re young, premiums for whole life insurance may be much cheaper than you think. And being young and healthy is a great opportunity to lock in low rates for this comprehensive policy.
Employers don’t typically offer permanent policies, but you can purchase one with a private insurance company. In fact, if you already have a term policy, insurers usually offer term-to-perm conversions. This allows you to convert your term life policy into a permanent life insurance policy without undergoing another medical exam. However, you’ll need to do so within a certain period of time.
Term life insurance
If you can’t afford a permanent policy, you can more term life insurance in addition to your primary life insurance policy. One strategy is to ladder your life insurance policies. This involves purchasing several term life policies with different coverage amounts at the same time.
For example, say you need $1 million in coverage right now. However, as your children become adults and your mortgage gets paid off, your coverage needs decrease. So, your policy ladder may look like this:
- 10-year term policy with $500k
- 20-year term with $300k
- 30-year term with $200k
Laddering your policies has several benefits. It allows you to reduce your premiums over time, lock in your premiums at a younger age, and customize your policy based on current needs and future needs.
No medical exam insurance
One of the main perks of employer-sponsored life insurance is that it’s available to all employees, and you likely don’t have to take a medical exam for supplemental insurance. In contrast, if you’re buying supplemental life insurance through a private insurer, you may have to go through the underwriting process again.
If you’re concerned about your health affecting your eligibility, you can opt for no medical exam insurance. These policies come in two forms: guaranteed issue and simplified issue life insurance.
Guaranteed issue life insurance (also known as final expense life insurance or burial life insurance) doesn’t require a medical exam or health questionnaire. Simplified issue life insurance also has no medical exam but requires a health questionnaire (though fewer questions are asked than in a traditional policy).
Be aware that these policies usually come with higher premiums and limited coverage compared to a traditional policy. You can find our guide on the best no exam life insurance here.
Spousal and child coverage
If you have a non-income-earning spouse, a spouse whose employer doesn’t offer life insurance benefits or children, you may be able to obtain affordable dependent life insurance through work.
If your spouse were to pass away, this policy would replace their income or pay for household duties such as cleaning and childcare that they were originally in charge of. If your child passes away, it offers enough coverage to pay for end-of-life expenses, so you can focus on grieving the loss of a loved one.
You can also purchase dependent life insurance through a private insurer. But like your life insurance policy, it tends to be more expensive and may require an extensive underwriting process.
Supplemental life insurance riders
Supplemental insurance can come in the form of riders, which can be added to your policy for an additional premium or for free. These are just a few common riders:
- Waiver of premium: Waives your policy premiums if you develop a critical illness, are severely injured, or are physically impaired and unable to work.
- Accidental death and dismemberment (AD&D): Pays a death benefit if you die or sustain severe injuries or dismemberment (e.g., paralysis, loss of limbs, sight, hearing, etc.) after an accident.
- Critical illness: Pays a benefit for medical expenses due to a critical health condition, such as cancer, a heart attack, paralysis, etc.
Cost considerations for supplemental life insurance
Depending on where you work, your employer may offer supplemental life insurance for free or at a low cost, as little as $2 per paycheck. In contrast, private insurance tends to be more expensive.
According to Policygenius, the average cost of a 20-year, $500,000 term life insurance policy for a male and female with a Preferred health rating is $26 per month. The average cost of a whole life insurance policy for someone with the same health classification is $451 per month.
If you’re buying supplemental insurance with a private insurer down the line, you’ll likely have to undergo additional underwriting. Based on your age and health status, your premiums will likely increase, especially if you’re buying extra insurance later. Policy premiums increase about 4% to 9% each year, according to Policygenius.
How to choose supplemental life insurance
The chief course of action is to consider if you need supplemental life insurance. If you don’t already have a good term or whole life policy, that’s where you’ll start. A good life insurance policy offers much more coverage than a supplemental policy, especially if you have a family or other dependents. The earlier and healthier you are when you get a policy, the lower your monthly premiums are likely to be.
Just as it’s important to understand what supplemental life insurance is, it’s equally as important to understand what it is not: A supplemental life insurance policy should never take the place of a solid life insurance policy, whether that’s a term or whole life policy. If you’re in the market for new coverage, consider checking out Insider’s round-up of the best life insurance companies available.
Then you’ll want to evaluate your dependent’s needs and financial goals. How much more do you need to subsidize your family’s day-to-day expenses, pay off the mortgage, or send your children off to college tuition? Would you like to leave an inheritance for your family? What types of coverages can help you achieve those goals?
You’ll also want to consider where to get supplemental life insurance: through your employer or through a private company. Private life insurance may offer more types of coverage and coverage amounts, as well as the ability to customize your policy with different riders. A non-employer-sponsored policy also follows you, even when you leave your job.
On the flip side, group supplemental life insurance is usually more affordable and easier to qualify for.
Supplemental life insurnace FAQs
Who should consider supplemental life insurance?
Consider supplemental life insurance if your current coverage doesn’t sufficiently cover your needs. Those who have specific concerns, such as terminal illness, accidental injuries, or financial protection in the event of a dependent’s death, may benefit from supplemental coverage.
Can supplemental life insurance be purchased independently?
Yes. You can purchase supplemental policies outside of employer-sponsored plans or as standalone policies to fit your specific coverage needs. Be aware that these policies tend to be more expensive than group supplemental insurance or riders.
How does AD&D coverage differ from standard life insurance?
Accidental death and dismemberment (AD&D) coverage specifically pays out in the event of accidental death, such as a car accident or a fall. It also pays benefits early in the case of dismemberment, such as loss of limbs sight, or speech. Standard life insurance covers a broad range of death causes, including accidental deaths or illnesses. However, it doesn’t offer dismemberment coverage.
What factors should I consider when choosing supplemental life insurance?
Consider your financial situation, potential future needs, and any coverage gaps in your current policy. You’ll also want to choose where to purchase supplemental insurance from: your employer or a private insurance company.
Are there any drawbacks to supplemental life insurance?
While supplemental insurance provides additional coverage, it’s important to ensure it fits your budget and doesn’t overlap with existing policies, causing you to overpay for coverage.
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