Q

Q

Do you need supplemental life insurance?

A

A

Buying supplemental life insurance through your employer can fill gaps in your coverage, but a private policy or rider is a better choice for most.

Amanda Shih author photo

Amanda Shih

Published July 14, 2020

KEY TAKEAWAYS

  • Supplemental life insurance is any life policy that is additional to employer-paid life insurance

  • 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

According to the Life Insurance and Market Research Association, 27% of people with life insurance only have coverage through their employer. 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.

Supplemental life insurance, also known as voluntary life insurance or voluntary supplemental life insurance, is one way to bridge the coverage gap left by a group policy. You’ll generally encounter supplemental life insurance as an optional employee benefit offered in addition to your basic group life insurance.

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What is supplemental life insurance?

As an employee benefit, the type and amount of supplemental life insurance coverage will vary based on your employer. Some employers will offer you a choice between additional term or whole life insurance. Some will 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. Over 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.

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 will 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 guaranteed issue, 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.

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Who should get supplemental life insurance

If you’ve run into issues applying for private life insurance coverage in the past, 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, your mortgage is paid off and you no longer have children to support), then a guaranteed issue supplemental policy can help you avoid a medical exam or other questions about your insurability.

Before you buy, make sure to find out whether the policy is portable, and compare the premiums of your supplemental policy 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

Getting voluntary life insurance coverage through your employer isn’t the right choice for everyone. 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 probably the 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 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.

The bottom line

For most people who want more life insurance coverage, a separate term or whole life policy is probably 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, with a private policy you won’t need to worry about changes to the policy terms that might occur after you’ve moved on.

However, if you’ve been denied life insurance on your own, supplemental life insurance might be worth comparing against other guaranteed issue options. Your decision will likely come down to the policy restrictions specific to your employer. Find out if you can get the coverage you need without sharing information that’s led to rejections in the past and if the coverage is portable and affordable. If so, then supplemental life insurance might be the best option for your situation.

Insurance Expert

Amanda Shih

Insurance Expert

Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.