What Is Supplemental Life Insurance?

Supplemental life insurance is additional life insurance coverage or provisional benefits that are either added to a life insurance policy or purchased as a separate policy altogether. Also called voluntary or employee-paid life insurance, supplemental life insurance may provide life insurance coverage for your spouse, your children, waiver of premium for disability, extra death benefit coverage in the case of specific causes of death, and a number of other benefits.

This article will discuss how supplemental life insurance works and how to determine if and when you should get supplemental coverage.

How Does Supplemental Life Insurance Work?

Supplemental life insurance can be purchased through an employer but can also be bought individually through private insurers. Employees will sign up for supplemental coverage when they first join a company or during an open enrollment period if it’s through an employer. Premiums from the coverage are usually subtracted from the employee’s paycheck. 

Employees usually aren’t subject to medical exams when purchasing coverage through an employer (meaning any health conditions you may have won’t be a factor in determining your insurance premium), but you may be limited by the maximum coverage amounts and premium rates that are offered to your group by the insurance company.

If you’re looking for an individual policy on the open market, you won’t have to worry so much about maximum coverage amounts, or limited options. For healthy individuals, the open market is usually the most cost-effective way to buy supplemental coverage. Not only will good health work in your favor, but you can also buy coverage specifically designed for you, your financial needs, and your goals at a price that is comfortable for you. In many cases, we can help people get their own individual supplemental life insurance coverage with more benefits than they could purchase through their employer.

Buying Supplemental Life Insurance Through An Employer

Like we mentioned, a common way to get supplemental life insurance coverage is through an employer. Most employers offer group life insurance at very little or no cost to you. However, this coverage is usually limited and not always transferable if you were to leave your job. Premiums for supplemental coverage are typically not covered by the employer but by you as the employee. And you may be required to buy supplemental coverage for yourself before being eligible to add supplemental coverage for your spouse or child.

Here are the five types of supplemental life insurance that may be offered through employers:

  1. Supplemental Employee Life Insurance: This adds coverage to your own policy. For example, say your group life insurance policy only has a $50,000 death benefit. You can buy supplemental coverage to increase your individual death benefit.
  2. Supplemental Spouse Life Insurance: This allows you to get supplemental coverage that will also cover your spouse’s life. This type of supplemental insurance can be helpful if your spouse’s health makes it hard to get coverage elsewhere. 
  3. Supplemental Child Life Insurance: This covers your eligible dependents. 
  4. Supplemental Accidental Death & Dismemberment Insurance: This additional coverage will pay out specifically if you die from or are seriously injured in an accident.
  5. Burial Insurance: This covers funeral costs (usually $5,000 to $10,000) should you pass away during your coverage period.

Limitations

While all these supplemental coverage options are nice options for additional coverage, you may not always get the best price through your employer. This is because you’re still locked into the options and rates that your employer can offer through the insurance company that is providing the plan. Especially if you’re a young, healthy individual, it’s likely you may be paying more than necessary for your supplemental insurance coverage. Another limitation is that not all supplemental coverages are transferable when you leave the company, similar to the basic employer group life insurance.

Buying Supplemental Life Insurance Through A Private Insurer

Depending on your age, health, and wanted coverage, the open market might offer better supplemental life insurance policies than workplace plans. With private insurers, you get a greater choice of policy options, potentially higher coverage amounts, and if you are in better than average health you may also get better rates. Plus, and this might be the most important, the policies you get can be tailored in coverage and cost to meet your specific financial goals and needs.

Types of individually purchased supplemental life insurance coverage offered through private insurers would include:

  1. Term or Permanent Life Insurance: If your work only offers bare minimum coverage, purchasing another policy that supplements that coverage can help you build your wealth and provide for your loved ones. 
  2. Child Life Insurance: Life insurance for children, outside of your employer’s plan gives you more options. You can purchase a permanent participating whole life insurance policy for them or add a small amount of coverage to your own individual term life insurance policy for them if you choose.
  3. Final Expense Life Insurance: This is still to cover burial or funeral costs, but it won’t be tied to your employer, and you may be able to get more coverage than the typical $5,000 to $10,000.
  4. Disability Insurance: You can also get supplemental short or long-term disability coverage to continue supplying income if you become partially or totally disabled. 
  5. Accidental Death & Dismemberment Insurance: This coverage will pay out if you die or are seriously injured in an accident, and again it won’t be tied to your employer.

Limitations

In general, supplemental insurance policies through private insurance companies allow higher coverage amounts, more options, and better customization than employer-based plans. However, your age and health may determine how much coverage you can get and at what cost. If you have serious medical conditions, getting group and supplemental life insurance through your employer might be the cheaper option.

Supplemental Life Insurance Through Your Current Policy

Another way to think about supplemental life insurance is through the riders you can have on a permanent participating whole life insurance policy. Popular riders include:

  • Paid-up additions rider
  • Guaranteed Insurability Rider
  • Accidental Death Rider
  • Waiver of Premium Rider
  • Accelerated Death Benefit Rider
  • Child Term Rider
  • Return of Premium Rider

Listen to our podcasts Planning for The Future and What Type of Life Insurance Do You Really Want to learn more about supplementing a current policy.

When Should You Get Supplemental Life Insurance?

Some people have life insurance through their employer and don’t think twice about adding additional coverage through that arrangement. Many employees are forgoing their opportunity to build wealth and provide for their loved ones with adequate life insurance. Here are some examples of when adding supplemental life insurance is a good idea:

  • Your current coverage amount isn’t enough to support those reliant on your income.
  • None or little of your coverage is guaranteed.
  • You aren’t building any equity or cash value.
  • You want additional coverage for your spouse or children.
  • You want additional coverage for specific circumstances like funeral or disability costs.
  • Your life insurance policy is tied to your work, where you’d lose it if you got another job.

Unsure Where To Start? Life Benefits Can Help

There are lots of options when it comes to supplemental life insurance. The best policies for your needs will depend on your age, health, financial goals, and long-term care needs. If you’re unsure where to start, we can help by conducting an independent review of your current policies to see where you stand and then schedule a strategy session to discuss and design a supplemental policy that’s customized for you.

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