What is supplemental life insurance & is it a good choice for you?

Is Supplemental Life Insurance A Good Choice For You?

Let’s cut straight to the chase: If your employer offers life insurance as part of your employee benefits package, you could be thinking that you’re covered, but if you do the math, you may realize that this is not entirely true.

The amount of life insurance that your employer provides could be insufficient to cover your loved ones if, unfortunately, something unpredictable were to happen to you. In this case, you may want to consider supplemental life insurance — whether through your employer’s plan or directly from another life insurance company.

Many people get a set amount of group term life insurance through their employers, often free of charge. That coverage is most likely based on your salary (i.e. one or two times your annual earnings). While that amount might cover something like your burial expenses, it likely won’t support your family for very long.

The American Council of Life Insurers suggests that policyholders obtain life insurance equal to 7 to 10 times their annual income. If your employer-provided insurance falls short of that, you may want to consider purchasing supplemental life insurance to fill that gap.

What Is Supplemental Life Insurance?

Supplemental life insurance is, simply put, the additional life insurance that you can purchase through your work — in addition to the group life insurance your employer is perhaps already offering, that is.

Here are the two main ways that you can purchase supplemental life insurance:

Employer-Provided Supplemental Life Insurance

Many employers’ group plans include an option to purchase supplemental life insurance coverage.

Your base life insurance coverage is usually provided for out of your paycheck. Because group life insurance is a part of your benefits package from your employer, it’s usually a free benefit or has affordable premiums.

With supplemental life insurance, that’s not always the case. Whether supplemental life insurance is a good value for you depends on the product and your personal age, health, and the amount of additional coverage you’re looking for.

If your employer offers supplemental life insurance, you can buy it in addition to the basic coverage provided by your company. Basic life insurance policies are typically free, cover one or two times your annual salary, and your employer pays the premiums.

Supplemental life insurance policies have higher coverage limits, but it’s typically YOU who pays the premiums.

Most commonly, only full-time employees or those who work a minimum number of hours are eligible for supplemental life insurance policies. To be eligible for supplemental coverage, companies typically require you to hold an active basic life insurance policy.

Some employers even offer both term life insurance coverage and supplemental life insurance. Since it’s a group policy, it may be a lot cheaper for you. The insurance company risks less when insuring a larger group of people, which often means a cheaper policy for you.

Most supplemental life insurance policies through work are group term life insurance, and coverage is tied to your employment. However, depending on the policy’s “portability,” you may be able to convert your group insurance into a personal policy and take it with you if you leave your job.

Private Purchased Supplemental Life Insurance

Just like you can get this type of insurance through your employer, you can also purchase supplemental life insurance privately. The open market definitely offers a wider choice of supplemental life insurance products than a group policy from your workplace.

Here are a few examples of what supplemental insurance policies look like on the open market:

In general, privately purchased supplemental term and permanent life insurance policies offer higher coverage amounts than employer-based plans. On the other hand, your age and health may determine how much coverage you can get.

In this case, it’s like buying private term life insurance. You do the research to see who can offer you the best deal and then purchase your insurance privately.

In some cases, private supplemental insurance can also be cheaper. If you’re young and healthy, any life insurance of any sort will be pretty cheap for you. Before you sign up for the employer’s coverage, you might want to check and see if you can get an individual policy more cheaply.

Practically speaking, the main advantage of private supplemental life insurance is that it is portable. You keep the coverage as long as you are paying the premiums. Another option for you here is purchasing supplemental life insurance for your spouse or domestic partner in his or her own name.

Types Of Supplemental Life Insurance

Depending on your needs and lifestyle, there are several types of life insurance that may be suitable to supplement your base policy.

Accidental Death and Dismemberment (AD&D)

Dismemberment Insurance Policies are paid out only if the employee is involved in an accident that causes death, causes the employee to become paralyzed, results in the loss of a limb, eyesight, hearing, or another unfortunate debilitating result as specified in the policy.

You can also purchase AD&D insurance or burial insurance on the private market. You also may be able to buy these policies as a rider on your original term life insurance policy.

Accidental Death and Personal Loss Insurance

This coverage pays the beneficiaries a set monthly amount for the time specified by the policy if:

  • Suffer From Paralysis As A Result Of A Workplace Accident
  • You End Up In A Coma For More Than 30 Days As The Result Of An Accident At Work
  • Lose Your Speech Or Hearing As A Result Of An Accident

Health Specific Insurance

This type of coverage pays a benefit if you die from a specific medical condition like heart disease, cancer, or other types of terminal illness. You might want to add health insurance coverage to your base life insurance if this type of illness runs in your family.

The heirs often use the proceeds to cover any medical expenses not fully covered by your health insurance, which allows your heirs to avoid using the death benefit funds from your other life insurance coverage.

Dependent Child Insurance

These policies cover the life of your dependent children. Note that the amounts are often lower than the amounts available to employees, or spouses/domestic partners.

Burial Insurance

These policies are designed to cover the cost of burial for the policyholder. They typically have a set amount, between $5,000-$10,000 as an additional death benefit.

Spousal/Domestic Partner Insurance

This type of coverage covers the life of your spouse or domestic partner if it’s offered by your employer. The amount available will often be some percentage of the amount of coverage you choose for yourself. There may be other policy limits in terms of the coverage and the portability of the policy if you leave your employer.

The Benefits Of A Supplemental Life Insurance Policy

It’s a good idea to look at your current coverage before you go to your enrollment meeting or sign up for private supplemental life insurance.

So, how much supplemental life insurance do you need exactly? Well, that depends on your Life insurance plans with your policy. One rule of thumb says to have ten times your annual salary in coverage. But that may be too much or not enough, based on your circumstances.

If your current coverage is enough or even more than enough, paying more for supplemental life insurance may not make that much sense. Putting that premium amount towards saving for retirement or other financial goals may be a wiser option, for example.

You might want supplemental life insurance if your current insurance isn’t quite enough, or if you’d like more coverage — but let’s compare the pros and the cons.

The Pros

  1. There’s a faster payout for burial insurance.

For example, your $500,000 term life insurance policy can take a few weeks to pay out to your family.

In the meantime, if you passed away, they’d have to deal with your burial costs immediately. Some burial insurance has a built-in accelerator clause, so the funds would become available really quickly.

That can give you extra peace of mind, even if you’re comfortable with your current term policy.

  1. AD&D pays out even if you don’t pass away.

If your employer offers an Accidental Death and Dismemberment option, it can be worthwhile even if you have plenty of insurance. Be sure to read the fine print.

But this type of policy could pay out even if you don’t pass away, which can make it very valuable. Of course, a long-term disability program could do the same thing. So balance the costs and benefits when deciding on your coverage.

If you don’t have enough insurance, an supplemental insurance policy can be very helpful. However, you shouldn’t rely on this policy too heavily — because of the potential portability issue.


The Cons

It’s absolutely essential that you understand all of the policy’s limitations when looking at supplemental life insurance.

It could be even more crucial for this type of policy, which can have so many clauses and exceptions.

The bottom line is that the less likely you are to need insurance, the less you should pay for it. If your AD&D policy pays out in exactly two types of accidents that you’re never likely to experience, it’s probably not worth the cost. But if the policy covers a broad variety of accidents and issues, it could actually be worth your while.

Supplemental life insurance through your job may cost more than policies on the open market, but it depends on where you work. With any non-portable life insurance policy, be sure that you have a backup or at least a plan for ensuring you’re covered properly if you move to new employment.

This is due in part to how insurers calculate group life prices. Insurance companies consider data about the group as a whole, such as the number of employees and their average age. This data is different for each company, so premiums can vary dramatically. For example, a 40-year-old employee might be able to buy a $500,000 supplemental life insurance policy for $600 a year at Company X, but only $250,000 of coverage for the same price at Company Y.

Your age can also impact the cost. In general, rates for supplemental life insurance policies through work are not locked in, which means premiums can increase with age.

For example, a $500,000 supplemental life insurance policy for an employee younger than 30 at Company A costs $168 a year, while the same policy for an employee older than 70 can be as high as $6,000 a year.

If you buy term life insurance on the open market, the premiums are typically locked in for the duration of the policy, regardless of any health conditions you develop along the way. Therefore, if you’re younger, you might be better off buying life insurance through a private insurer and taking advantage of the lower, locked-in rates.


The cost of supplemental products on the open market depends on many factors:

  • Your Age
  • Your Medical History
  • The Insurer
  • The Type Of Coverage You Choose

In general, term life insurance is cheaper than whole life insurance or permanent life insurance.

For supplemental life insurance, however, most insurance companies guarantee acceptance only up to a set amount of coverage (like $100,000 or $1 million).

To buy more than that amount, you may need to complete a medical exam or prove that you’re not a risk to insure.

Final Word

Eighty percent of companies in America offer supplemental life insurance to their employees, according to a 2018 study by the Society for Human Resource Management. But having the option to buy it doesn’t always mean you should.

As with all types of insurance, there are pros and cons to buying supplemental life insurance from your employer.

Maybe it’s the ease of signing up through work and paying premiums out of your paycheck. Maybe you have an underlying health condition, so you would like to take advantage of supplemental coverage that’s guaranteed through work — it all depends on what’s the most important to you.

On the upside, if you’re young and healthy, your vitality will probably work in your favor to get a cheaper policy on your own than through an employer.

Some employers offer supplemental whole life insurance policies in addition to the standard term insurance. But you should know that your age and health may prevent you from qualifying.

If you’re looking for more substantial coverage, consider buying multiple term life policies of different lengths instead of buying one supplemental product. If you want specific features instead of more coverage, you can probably upgrade your current policy with life insurance riders (like “accelerated death benefits”, for example, which lets you take a partial payout from your policy if you become terminally ill).

Make sure to review your existing policy before opting for supplemental coverage. Your basic policy may already include AD&D, spouse, or dependent life insurance at no additional cost to you.

Even though basic life insurance through work is typically free, you could lose your coverage if you decide to quit your job. Purchasing supplemental life insurance policy privately (or through work, but the one that allows you to take it with you when you quit), means that you’re covered no matter where your career takes you.

Life insurance quotes and your monthly premium will depend on the insurance company that you choose, and their specific life insurance rates. Research thoroughly and good luck!