Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
Supplemental Life Insurance: Is It Necessary?
By Kat Tretina MONEY RESEARCH COLLECTIVE
If you’re the primary wage earner in your household, how would your loved ones handle expenses if you died? Most families would reach financial struggles quickly. According to a study from LIMRA, 44% of households said it would take less than six months before they experienced financial hardship.
Supplemental life insurance can provide financial security if the unthinkable happens. It provides an additional layer of protection on top of your existing group life policy from your employer. Although it’s an additional expense, it can be well worth it for those who need extra coverage.
Table of contents
- What is supplemental life insurance?
- How does supplemental life insurance work?
- Is supplemental insurance necessary?
- How to get supplemental life insurance
- How much supplemental life insurance coverage do you need?
- How much does supplemental life insurance cost?
- Basic life insurance vs. supplemental life insurance
- Supplemental life insurance FAQs
- Summary
What is supplemental life insurance?
If you work full-time, you may be eligible for life insurance through your employer. According to the U.S. Bureau of Labor Statistics (BLS), 57% of private industry workers and 83% of state and local government workers had access to life insurance through work in March 2022.
Employer-sponsored insurance allows you to get life insurance at a relatively low cost. Also, you can usually get it without a medical exam or medical underwriting. However, employer-provided life insurance has limitations; the death benefit is based on your salary. For example, your policy’s benefit may be one year’s salary.
For most families, employer-provided life insurance coverage is inadequate. That’s why supplemental life insurance can be so valuable. Supplemental life insurance can provide additional protection — up to several times your annual salary — so you can ensure your family has the protection they need.
Pros and cons of supplemental life insurance
Is supplemental life insurance right for you? When making the decision, consider these advantages and drawbacks:
Pros of supplemental life insurance
- You can often pay via payroll deductions: If your employer offers supplemental life insurance, you can typically pay for it through payroll deductions. That can simplify your payments and make it more convenient to manage your policy.
- It’s affordable: Supplemental life insurance is often cheaper than individual life insurance policies because your employer may participate in a group plan that reduces the costs. As a result, supplemental life insurance can be an affordable way to add additional coverage.
- You may skip medical exams: With supplemental life insurance, you may be able to get additional coverage without having to take a medical exam. This is especially helpful for those with pre-existing medical conditions, as they may not qualify for traditional life insurance policies.
Cons of supplemental life insurance
- Limited coverage options: With supplemental life insurance through your employer, you’re limited to the coverage options offered within the group plan. For example, if your employer’s plan only provides term life and you want to purchase universal life insurance, you’ll have to buy another policy on your own.
- You may lose coverage if you leave your job: If you buy supplemental coverage, it’s tied to your job. You may lose your insurance policy if you leave your position.
- Higher amounts require more underwriting: Typically, employer-provided supplemental life insurance policies allow you to skip the underwriting process up to a certain dollar amount, such as $200,000. If you want a higher level of coverage, you’ll likely have to undergo a medical exam and bloodwork.
How does supplemental life insurance work?
With supplemental life insurance, your employer decides how much coverage workers get as part of their employee benefits package. The employer also sets how much additional coverage employees can buy at their own cost.
For example, your employer may give all employees life insurance equal to one year’s salary. You may have the option of getting coverage that provides a death benefit equal to five years of your current salary, and you’re responsible for the difference in cost.
In general, you can sign up for supplemental life insurance when you start a new job or during your employer’s annual benefits enrollment period. If you experience a major life event — such as getting married or having a child — you may be able to sign up for supplemental life coverage outside of the annual enrollment period.
Is supplemental insurance necessary?
Not everyone needs supplemental life insurance. But for many, it can provide critical protection. When deciding whether it’s worth the money to purchase it, ask yourself the following questions:
- Are there people dependent on my income?
- Would my savings and assets be enough to cover my family’s expenses?
- How would my family pay for my burial expenses?
- How will my children pay for college?
In a recent LIMRA study, two out of five parents said they are barely or not at all financially secure. That means they would experience significant financial problems if a working parent dies. You’ll likely need additional insurance coverage if you have children or other dependents.
How to get supplemental life insurance
Here’s how to get additional life insurance beyond the employer-provided amount.
Supplemental life insurance through work
If your employer offers life insurance, you can usually purchase supplemental life insurance during the annual benefits open enrollment period. If you aren’t sure when that is, talk to your human resources department to find out.
Depending on your employer’s group plan, you may be able to buy the following forms of coverage:
| Life insurance type | Coverage | Pros | Cons |
| Supplemental employee life insurance | Coverage for the employee | Cheaper than standalone coverage | May not be portable |
| Supplemental spouse life insurance | Coverage for the employee’s spouse | Coverage without a medical exam | Limited in amount and may not be portable |
| Supplemental child life insurance | Coverage for the employee’s minor children | Inexpensive | Limited in amount and may not be portable |
| Supplemental accidental death and dismemberment insurance | Coverage for the employee in case of accidents | Inexpensive and offers additional coverage for family | May not be portable |
Alternative coverage through private insurers
If your employer doesn’t offer group life insurance, you can purchase life insurance on your own through a private life insurance company.
Purchasing your own coverage allows you to customize the policy and death benefit to meet your needs. However, you may have to get a medical exam and go through the full underwriting process to get coverage.
When you purchase life insurance, you can choose from the following options:
- Term: Term life is the least expensive type of policy because it provides temporary coverage for a specified period. Your beneficiaries only receive a payout if you pass away within the policy’s term.
- Permanent: Permanent coverage, such as whole life insurance or universal life insurance, is designed to last for your lifetime. Permanent policies can accumulate cash value over time; as a result, a permanent life insurance plan is usually much more expensive than term life insurance.
- Final expense: Final expense policies, also known as burial insurance plans, are small whole life plans that cover burial costs or other funeral expenses.
Buying your own policy also allows you to adjust your coverage with optional insurance riders. Some offer coverage for your spouse or children, or even allow you to tap into your policy if you develop a chronic or terminal illness.
Most companies allow you to get free quotes for certain types of insurance, such as term life coverage, online.
How much supplemental life insurance coverage do you need?
How much life insurance you need is dependent on your lifestyle, income and dependents. In general, experts typically recommend coverage equal to seven to 10 times your annual income. You can use LifeHappens’ life insurance needs calculator to calculate the coverage you’ll need to provide for your family adequately.
How much does supplemental life insurance cost?
The cost of supplemental life insurance varies on your plan, desired coverage amount and the type of life insurance you choose. Supplemental life insurance is usually much cheaper than individual policies — you can often get insurance for just a few cents per $1,000 of coverage.
Basic life insurance vs. supplemental life insurance
Supplemental life insurance refers to the additional coverage you get from your employer beyond the amount included in your benefits package. You can also buy basic life insurance on your own.
The most common form of basic life insurance is term life coverage. It’s relatively affordable, and your beneficiaries receive a life insurance benefit if you die during the policy’s term. Term life policies can range from $50,000 to $10 million or more of coverage.
Unlike supplemental policies, individual policies aren’t dependent on your employment, so you won’t lose coverage if you leave your job.
Supplemental life insurance FAQs
Summary of our guide to supplemental life insurance
If you have children or other dependents that would struggle to make ends meet without your income, supplemental life insurance is a valuable form of protection. You can purchase it at a relatively low cost to provide additional coverage for your loved ones.
Before buying, review the plan terms to determine how much coverage you can get and what the underwriting process is for higher death benefit levels. Also, review the policy documents or talk to your human resources department to ask about the plan’s portability to find out if you can take your policy with you if you leave your job. Taking these steps will help you get the protection you need for your family.
