Supplemental life insurance is coverage that goes beyond the standard life insurance coverage that may be offered by your employer via their employee benefits package.
What is Supplemental Life Insurance?
Supplemental life insurance is just what the name implies, its life insurance coverage that supplements other life insurance coverage that is offered by your employer. Many companies offer life insurance coverage as part of their employee benefits package. A certain amount of coverage may be offered as part of your employer's benefit package at a low cost, or even free in some cases. The latter might include a multiple of your annual compensation up to some limit.
The amount of life insurance available from your employer may or may not be sufficient for your coverage needs. If you need more coverage, a supplemental life insurance policy might be the solution.
How Does Supplemental Life Insurance Work?
Supplemental life insurance refers to any life insurance that you might purchase on a group basis over and above what your employer offers. There is also supplemental life insurance policies that are available privately.
Group supplemental life insurance is often available as optional coverage by employers at an additional cost. It is typically term insurance coverage. These policies may be portable if you leave the employer, you may be able to continue the coverage. The cost may be more than you were paying while employed by the employer through whom you purchased the coverage.
Unlike the basic group life insurance coverage offered by the employer, you may have to provide evidence of insurability in the form of health and medical information. With the basic coverage offered by employers, everyone qualifies and no evidence of insurability is needed. The insurance company may not be willing to provide the additional coverage unless they are comfortable with you as a risk.
Types of Supplemental Life Insurance
Accidental Death and Dismemberment (AD&D)
These policies pay out only if the employee is involved in an accident that causes their death, causes the employee to become paralyzed or results in the loss of a limb, eyesight, hearing or other similar debilitating result as specified in the policy.
Accidental Death and Personal Loss Insurance
This coverage pays the beneficiaries a set monthly amount for the time specified by the policy in the event that you:
- Are in a coma for more than 30 days as the result of an accident at work.
- Suffer from paralysis as a result of a workplace accident.
- Lose your speech or hearing as a result of an accident.
Health Specific Insurance
This type of coverage pays a benefit if you die from a specific medical condition like heart disease, cancer or other types of terminal illness. You might add this coverage to other life insurance if this type of illness runs in your family. The heirs often use the proceeds to cover any medical expenses not fully covered by the insured's health insurance, allowing them to avoid dipping into the death benefit from other life insurance coverage.
Spousal/Domestic Partner Insurance
This type of coverage covers the life of your spouse or domestic partner, if offered by your employer. The amount available will often be some percentage of the amount of the coverage you select on yourself. There may be other policy limits in terms of the coverage and the portability of the policy if you leave your employer.
Dependent Child Insurance
These policies cover the life of your dependent children. The amounts may often be lower than those available to employees or spouses and domestic partners.
These policies are designed to cover the cost of burial for the policy holder. They will typically have a set amount, perhaps $5,000-$10,000 as a death benefit.
How to Buy Supplemental Life Insurance
Supplemental life insurance is usually purchased via your employer. Many employers' group plans include an option to purchase additional coverage. There may be a limit to the amount of coverage that can be purchased.
Premiums may vary based on the amount of coverage selected, and perhaps based on your age and other factors. You may also pay the full cost of the coverage, versus an amount that is subsidized by your employer as is often the case with the base amount of life insurance offered under your employee benefit package.
Another option is to look for supplemental life insurance privately through an insurance company not affiliated with your employee benefit plan offerings. You can shop around to see which company offers the best deal on the type of supplemental policy you are considering.
For example, if you are considering AD&D coverage or a burial policy, you can shop around different insurers who offer this coverage in the private market and compare the costs to what is offered though your employer. If you already have a term policy via a private insurer you may be able to add some types of supplement coverage onto your existing policy as a rider. Another potential advantage of buying supplemental life policies privately is that there are no potential portability issues when you leave your employer.
Is Supplemental Life Insurance Worth It?
Whether or not supplemental life insurance is worth the cost will depend upon several factors.
- How much life insurance coverage do you need? This will vary based upon your circumstances and your situation. Factors might include whether you are married or single, whether or not you have dependents such as minor children, your income and other factors.
- Your current life insurance coverage. Beyond the basic insurance offered by your employer, do you have other life insurance coverage in force? Perhaps a private insurance policy beyond any group benefits.
- Does the supplemental policy have features and benefits compared to purchasing a term policy or some other form of life insurance privately on your own from an insurance company?
Everyone's situation is different, but you should look carefully and consider the pros and cons of various types of supplement policies versus just buying regular life insurance outside of your employer's benefit package.