Q

What is supplemental life insurance?

A

Supplemental life insurance is optional additional coverage through your employer, but a private life insurance policy or rider is a better choice for most.

Supplemental life insurance, also known as voluntary life insurance or voluntary supplemental life insurance, can be used to bridge the coverage gap left by an employer-paid group policy. You’ll generally encounter supplemental life insurance as an optional employee benefit offered in addition to your basic group life insurance, but not all employers offer this benefit.

According to the Life Insurance and Market Research Association, 27% of people with life insurance only have coverage through their employer, as opposed to their own private policy. This employer-provided insurance, usually group term life insurance, is often subsidized by employers and offers coverage up to a certain amount, like one to two times your salary or $50,000. But experts suggest that your life insurance death benefit should actually be 10 to 15 times your income.

But there are better ways to secure additional life insurance coverage if you need it. While we recommend taking advantage of a group life insurance policy if your employer offers one, purchasing supplemental life insurance through your employer isn’t usually the best option. Instead, round out your group life insurance by purchasing a private life insurance policy, or opt for a rider instead.

KEY TAKEAWAYS

  • Supplemental life insurance can be purchased to complement group life insurance that doesn’t provide a large enough death benefit

  • Supplemental policies are typically bought through your employer but can be purchased privately

  • Cost and insurability requirements vary by employer, the coverage available, and your age

  • You may be able to take supplemental insurance with you if you leave your job

What is supplemental life insurance?

The type and amount of supplemental life insurance coverage varies based on your employer. Some employers offer a choice between additional term or whole life insurance. Some allow you to add riders to your group life insurance policy. For other businesses, voluntary life insurance may only refer to additional accidental death and dismemberment (AD&D) or burial insurance.

Like your employer-sponsored group life insurance, it’s likely a supplemental policy will be guaranteed issue up to a certain amount. However, if you’d like to add supplemental coverage that is greater than your employer’s set coverage limits, which vary by company, you may need to provide more information to the insurer. This could be as simple as sharing financial information with an underwriter, or you could be required to go through a full medical exam.

Because your supplemental insurance coverage is tied to your employee benefits, you may have the option to adjust your coverage during open enrollment rather than going through the more complex process of increasing or decreasing your coverage with a private insurer. And depending on your policy, your plan might be portable, i.e., you might have the ability to take it with you if you lose or leave your job, unlike most basic group life insurance policies.

Cost of supplemental life insurance

The cost of supplemental life insurance depends mainly on your age and whether your employer will subsidize your monthly premium. Instead of putting you through underwriting, many group insurance providers use age ranges to determine your premiums. Those in younger age groups will pay less while older employees will pay more. If your voluntary life insurance is a guaranteed issue policy, then you might pay more than you would for an underwritten private policy, since you’ll be skipping the insurer’s health and risk evaluation.

The death benefit from group life insurance may also be taxable if it exceeds $50,000. And if you buy supplemental life insurance for your spouse or a dependent exceeding $2,000 in value, the entire death benefit amount could be subject to tax. It won’t cost you now but could cost your beneficiaries in the long run.

Who should get supplemental life insurance

Supplemental life insurance isn’t right for everyone, but it makes sense in certain conditions:

  • If you’ve been declined private life insurance in the past because of your age or a chronic illness voluntary life insurance could be a good way to get the additional coverage you need.
  • If you don’t need a large amount of supplemental coverage (for example, if your mortgage is paid off and you no longer have children to support but are looking to cover burial expenses), then a guaranteed issue supplemental policy can help you avoid a medical exam or other questions about your insurability.

Before you buy supplemental insurance through your employer, find out whether the policy is portable, and compare the premiums against those of a private policy. Some voluntary policies don’t have fixed premiums, meaning what you owe every month could increase as you age.

Alternatives to supplemental life insurance

If you don’t fit into one of the above scenarios, getting voluntary life insurance coverage through your employer likely isn’t the best choice for you. If you want more coverage than your group policy offers, there are other ways to get what you need.

Private term or permanent life insurance

It’s not as easy as checking a box to opt into employer-sponsored coverage, but getting your own term or permanent life insurance policy is a better solution if you want more coverage than your employer offers. Term and whole life insurance usually require a medical exam, but there are options for accelerated underwriting and no-exam insurance if you want or need to skip testing. A private policy will also stay with you if you change or lose jobs, could be cheaper than supplemental coverage, and the premiums will stay stable as long as the policy stays active.

Life insurance riders

For relatively small increases in coverage for yourself and your loved ones, like long-term-care or child coverage, you may be able to add a relevant rider to an existing life insurance policy. Some employer-paid life insurance and many private policies allow you to add a child rider and other coverage riders for free or for a small additional premium.

Standalone private policies

If you’re focused on buying a specific kind of additional coverage, you can purchase a standalone private policy like an AD&D policy or life insurance for a spouse without tying the insurance to your employer. If you’re relatively healthy, a standalone policy is likely more affordable than what your employer offers, and has the benefit of portability.

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Is supplemental life insurance worth it?

For most people who want more life insurance coverage, a separate term or whole life policy is the best option. If you’re young and healthy, a private policy will probably cost less for more coverage than you’d get through your employer. And even if your employer allows you to keep your policy after you leave (not always the case), you can have peace of mind with a private policy because your insurance won’t be tied to employment.

However, if you’ve been denied private life insurance, it’s worthwhile to compare your employer’s supplemental life insurance against other, private guaranteed issue options.

Supplemental life insurance FAQs

What happens to supplemental life insurance when you leave a job?

Sometimes, you can take an employer-paid life insurance policy with you when you leave the company, but in most cases your insurance is tied to employment. If you have that option, it’s usually not worth it because you’ll have to pay high premiums. Private life insurance policies stay with you as long as you pay your premiums, which tend to be more affordable than policies offered by employers.

Is supplemental life insurance taxable?

Unlike private life insurance, which provides a tax-free death benefit to your beneficiaries if you die while the policy is active, supplemental life insurance can be subject to taxes. According to the IRS, employer-paid life insurance coverage (including group and supplemental coverage) that exceeds $50,000 can be taxed like income, which affects both the employer and employee.

What is the difference between basic and supplemental life insurance from your employer?

Group life insurance from your employer (also called “basic” life insurance) is an employee benefit that’s available at no additional cost. Any additional coverage you purchase beyond the basic offering is called supplemental life insurance.

Life Insurance Expert

Amanda Shih

Life Insurance Expert

Expertise
Amanda Shih is a life insurance editor at Policygenius in New York City. She has a passion for making complex topics relatable and understandable, and has been writing about insurance since 2017 with specialities in life insurance cost and policy types. She's previously written for Jetty and LegalZoom.

Education
Amanda has a B.A. in literature and communication from New York University.

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.