Sometimes a situation will arise where you need to buy additional term life insurance. For instance, you have life insurance through a group plan offered by your employer, but the amount you’re insured for isn’t enough or you don't want to lose coverage if you change your job. Or, you have an existing term life insurance policy but your financial obligations have increased with the birth of a new baby. Or, your term policy is about to run out and you still want to be covered.
On one hand, buying more life insurance is as simple as it sounds: you can just go to a broker or online marketplace like PolicyGenius and shop for a new policy. On the other hand, there are some things you should be aware of before you start.
Figuring out how much life insurance you need
Before you buy anything, you should first crunch some numbers and figure out how much life insurance you need versus how much you actually have.
With employer-offered insurance, the death benefit is typically calculated as a multiple of your salary, and you’ll still see recommendations like this online even today. But going by salary alone is an old-school guesstimate approach to calculating your coverage needs, and hey — it’s the 21st century! We now have the magic of internet quizzes at our fingertips, and we can do better.
By "better," I mean actually adding up all of your financial obligations, comparing that to your assets, and then figuring out the actual amount of coverage you need. You can do this in a simple spreadsheet, or use our free checkup tool, which—bonus—will also tell you what other types of insurance you need or don’t need.
Armed with this more realistic number, you can now compare it against the amount of coverage you have from your employer’s group plan or from your current individual policy and decide whether you need to buy more.
Why buying supplemental insurance through your employer is risky
Let’s assume it turns out that you do need to buy more coverage. Your first thought might be to look at buying supplemental insurance through your employer-sponsored group plan.
Although this might appear to be a convenient way to increase your coverage, there are some drawbacks:
The amount you’ll pay for the supplemental coverage could be more than what you’d pay for an individual policy you purchased on your own, especially if you’re young and healthy.
If the group plan doesn’t have a conversion option (where you convert the group plan into an individual policy), you won’t be able to take the coverage with you when you leave your job.
If the group plan does have a conversion option, you may not be able to convert it to a term policy, which we recommend, and instead will be forced to convert it to a permanent policy, which is more expensive (and a bad idea for a number of other reasons).
You don’t have any say over the choice of insurance company. (Ratings matter when it comes to picking a trustworthy insurer.)
Your second option, and the one we’d recommend, is to make sure you’ve taken advantage of all the free insurance your employer offers, but then shop for a private term life insurance policy to make up the difference.
(As an aside, although you should always say yes to free insurance coverage from an employer, if the insurance isn’t convertible then it makes sense to buy a large enough private policy to fully cover your financial needs instead of just making up the difference.)
Two riders that can help you buy additional term life insurance
If you already own a term life policy, then before you go shopping for a brand new policy, there’s a rider you should check for first. See whether your current policy has a "guaranteed insurability option" (it may be called something else like "additional purchase option" or "renewal provision"). This handy rider gives you the power to increase the size of the death benefit on your current policy without having to undergo a new medical exam, which is great if you’re over 35 or have developed new health issues since you last bought life insurance.
There’s another rider to look for if the reason you’re buying more life insurance is because your term policy is about to end but you still want protection. If your term policy has a conversion rider, then you will be able to convert some or all of the policy into a permanent policy without having to go through underwriting again. This isn’t a cheap solution, but it’s a good way to transition over to a new life insurance policy without having to undergo a new medical exam, which is a good thing if you’re older or you’ve developed health issues.
(As another aside, these two riders are good ones to include on your policy when you shop for term life insurance. Here are some other riders that are worth adding.)
Buying a new policy
If you need to buy a new policy outright, there are two things to keep in mind:
Be sure to tell your agent or broker about any life insurance you already have. Insurers ask about this to make sure that you're not over-insuring yourself.
Now that you're older, any policy you shop for is going to be more expensive than before simply because of how insurers look at age and health history when figuring out the price.
That said, the good news is the process is exactly the same as if you were buying a term life policy for the first time--there are no extra hurdles to jump through. You'll compare quotes, fill out an application and go through underwriting, and then have your new term life insurance policy in a month or so.