What is supplemental life insurance?

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

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Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Kristi Sullivan, CFP®Kristi Sullivan, CFP®Certified Financial PlannerKristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

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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.

Life insurance terms you should know
  • Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.

  • Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.

  • Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.

  • Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.

  • Insured: The person who is covered by the insurance policy.

  • Policy: The legal document that includes the terms and conditions of your life insurance contract.

  • Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.

  • Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.

  • Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.

  • Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.

  • Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.

  • Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.

What is supplemental life insurance?

Supplemental life insurance helps cover the gaps of your employer-provided group life insurance policy. The type and amount of supplemental life insurance coverage varies by 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 — guaranteed-issue policies are aimed at paying final expenses and usually don’t require medical prerequisites for approval.

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, meaning you might be able to take it with you if you lose or leave your job, unlike most basic group life insurance policies. However, if you do choose to take the policy with you, the premiums often go up substantially once you leave the group life plan.

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 premiums from group life insurance may also be taxable if your benefits exceed $50,000. The exact amount you pay depends on how much of your premiums are covered by your employer and IRS guidelines.

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.

  • If you don’t have a personal policy yet, supplemental life insurance can be a good stop gap while you get a private policy in place (you can generally unenroll from the supplemental policy during open enrollment).

According to the Life Insurance and Market Research Association (LIMRA), 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.

Learn more about how much life insurance you need

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, 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.

Learn more about cheap life insurance

Ready to shop for life insurance?

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.

Learn more about life insurance rates

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.

Learn more about other types of life insurance

Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Kristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

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