Last updated: November 25th, 2022
Reviewed by
Paige Geisler
Licensed Insurance Agent
If your employer offers supplemental life insurance, it’s essential to understand how this policy works to determine if it’s right for you.
Table of Contents
Supplemental life insurance is additional life insurance purchased to increase coverage provided by an employer or organization, such as a union or membership society.
For example, your employer may offer free basic life insurance as part of your employee benefits package. Basic life insurance policies typically have low coverage limits, meaning the death benefit may not be high enough to meet your family’s needs when you pass away. Many people purchase additional coverage to supplement their plan, hence the name “supplemental life insurance.”
Employers usually determine how much basic life insurance to provide and how much supplemental insurance you can buy based on your salary. For example, your employer could offer free basic coverage worth twice your yearly salary and allow you to purchase supplemental life insurance worth up to ten times your annual salary.
Premiums for supplemental life insurance are often deducted automatically from your paycheck. This simplifies the process of purchasing additional coverage. It also makes it easier to manage your policy and keep your premium payments up to date.
Similar to classic life insurance policies, supplemental life insurance pays a death benefit to your named beneficiaries when you die. How your policy works depends on the type of insurance your employer provides. Common types of supplemental life insurance include:
The primary purpose of supplemental life insurance is to cover your beneficiaries’ financial needs when you pass away. Your beneficiaries are the people you choose to receive the death benefit. Most supplemental life insurance plans don’t restrict how beneficiaries can spend the death benefit, allowing them to use it to pay off an outstanding mortgage, settle debts, or for any other purpose.
However, some supplemental life insurance plans provide coverage for specific instances. For example, some plans may cover end-of-life costs, such as funeral expenses and a burial or cremation, and some policies will only pay out if you pass away from an accident while on the job. It’s worth asking your HR representative to explain precisely what your policy covers — and what it doesn’t — before committing to a supplemental life insurance plan.
One of the primary benefits of purchasing supplemental life insurance through your employer is that it’s often cheaper than purchasing a policy from a company on an individual basis. However, this isn’t guaranteed, and you may find private insurers offering comparable products for less. You can use a comparison website to help you weigh your options.
Many supplemental life insurance policies purchased through an employer or an organization’s benefits package don’t require a medical exam or health questionnaire. This could be particularly advantageous when you have a preexisting health condition that makes it challenging to qualify for private life insurance. However, providers may restrict the coverage amount available without medical underwriting.
Supplemental life insurance policies are less flexible than private plans because your employer’s decisions limit your coverage options. You can’t customize your plan to suit your family’s financial circumstances. It’s essential to consider whether the supplemental life insurance plan being offered is adequate to support your beneficiaries before signing up.
Unlike basic employer-provided life insurance, supplemental life insurance isn’t always portable. This means you may lose your coverage if you leave your job. Life insurance gets costlier with age, so obtaining the same level of coverage will be significantly more expensive when you leave your position years later.
You can sign up for supplemental life insurance when you begin working for a company that offers life insurance as a benefit or join a participating organization. Alternatively, you can purchase your policy during the annual benefits enrollment period. Most providers also allow you to buy coverage when you experience significant life changes, such as having children or getting married.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Paige is an assistant agent for State Farm and is licensed to sell property and casualty, health, and life insurance in Virginia. She handles all different types of insurance and financial services and is currently working on a securities and bonds license. Paige has a degree from Radford University in English and is a certified notary.
