Supplemental Life Insurance: What Is It & Do You Need It?

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You’ve probably heard about supplemental life insurance when joining a new company or during your employer’s open enrollment period. But what is supplemental life insurance? This guide addresses this question and helps you understand if you need it.

What Is Supplemental Life Insurance?

Supplemental life insurance is coverage that you can purchase through your work in addition to your traditional life insurance policy. It expands your already existing insurance if it’s not sufficient to cover your family’s financial needs in the event of your death.

A supplemental life insurance policy is typically purchased out of your paycheck. A good value depends on your age and the product, health, and amount of coverage you’re seeking.

Supplemental term life insurance is provided for accidental death, dismemberment, burial costs or expressed as an additional coverage amount.

NOTE: Accidental death and dismemberment insurance differs from one company to another. The coverage you obtain depends on limits set by the company and can range between $30,000 and $200,000.

Types of Supplemental Life Insurance

Most supplemental life insurance through work is group term insurance, and the coverage is conditional on your employment. But depending on the policy’s portability, it’s possible to convert your group life insurance to a personal insurance policy and take it when you leave. The four main types of supplemental life insurance policies offered through work include:

Supplemental Employee Life Insurance

This insurance boosts coverage to your own policy. If you’re eligible, you can buy supplemental life insurance in $10,000 increments, up to $300,000. The coverage you purchase can’t exceed three times your base salary. Premiums are based on the coverage level you select and your age. You also must pay the total cost of this coverage.

Supplemental Spouse Life Insurance

This covers the life of your spouse or domestic parent. The amount available might be some percentage of the amount of coverage you’ve selected for yourself. There may also be other policy limits in terms of coverage and possible portability if you leave your workplace.

Supplemental Child Life Insurance

This insurance covers eligible dependents, i.e., the life of your dependent children is protected. But the amounts can be lower than other policies available to employees, spouses, or domestic partners.

Supplemental Accidental Death and Dismemberment Insurance

This covers you in addition to the basic policy. This type of policy pays out funeral expenses only if the employee is involved in an accident that caused death. It also pays out if an accident causes the employee to become paralyzed or suffer limb loss, eyesight, hearing, terminal illness, or other similar debilitating adversities.

How Does Supplemental Life Insurance Work?

A supplemental life insurance policy refers to any life insurance coverage you may purchase on a group basis over and above what your employer provides. There is also private supplemental life insurance available—you can buy a policy from a life insurance company or private insurer to supplement the basic plan given by your employer.

Group supplemental life insurance is often obtainable as optional coverage by employers at an extra cost. These types of policies can be portable. So if you leave your workplace, you might be able to continue the coverage, but the supplemental life insurance cost will probably be higher.

The amounts are generally in multiples of salary. For instance, you can obtain coverage equal to one year’s salary for free, and then you may choose to pay up to five times your salary in supplemental insurance.

You can sign up when you experience a life event—such as a new baby or a spouse’s job loss—during your annual benefits package enrollment period. In most cases, you won’t need to answer health questions or take a medical exam. And your premium payments come directly from your paycheck.

NOTE: According to LIMRA’s 2021 annual Life Insurance Barometer Study, 29% of Americans think that the life insurance coverage they receive through their work is enough.

Supplemental Life Insurance Through an Employer

If your employer provides a supplemental life insurance policy, you can purchase it in addition to the basic coverage that the company offers. Typically, basic life insurance policies are free—the employer pays the premiums, covering one or two times your annual income.

Supplemental life insurance policies, however, have higher coverage limits, but usually, you pay the premiums.

Generally, only full-time employees are suitable for a supplemental life insurance policy. In addition, companies typically require you to have a basic life insurance policy to be eligible for supplemental life coverage.

Key Takeaways

Supplemental life insurance meaning is to expand your already existing insurance if it’s not sufficient to cover the financial needs of your family in the event of your death.
Supplemental life insurance is a coverage that you can purchase through your work in addition to a traditional life insurance policy.
The four main types of supplemental life insurance policy offered through work include supplemental employee life insurance, spouse supplemental life insurance, dependent child life insurance, and supplemental accidental death and dismemberment insurance.
Supplemental life insurance policies can be portable. So if you leave your workplace, you might be able to continue the coverage.
Typically, only full-time employees are eligible for a supplemental life insurance policy.

Coverage Through Work

Employee supplemental life insurance policies provide more coverage than the basic plans to a limit that varies by company. Typically, maximums range from $250,000 to $500,000, but they can reach several million dollars. Some high-level executives and managers have access to higher amounts than other employees.

Limits are usually lower for children or spouses. Typical maximums might be $45,000 to $500,000 for a spouse and $10,000 to $40,000 for a child.

In contrast to many whole life insurances from private insurers, supplemental group life insurance policies through an employer allow you to increase or decrease the amount of coverage at certain times.

Keep in mind that when you have supplemental life insurance through work, your policy’s death benefit can decline automatically when you reach a certain age (70 to 75). If this happens, you pay only a percentage of the premiums to match the lower death benefit.

NOTE: About 6% of Americans buy private health insurance not related to their employment.

Is Coverage Guaranteed?

What is SLI, and what does it cover? Typically, you qualify for basic life insurance through your employer, regardless of your medical history or age. But for a supplemental life insurance policy, companies guarantee acceptance up to a set coverage amount.

To purchase more than that set amount, you need to prove you aren’t a risk to insure, or you might need to complete a medical exam. The company can offer guaranteed coverage only during open enrollment windows.

Portable Coverage

You can take a supplemental group life insurance policy through work and purchase it on the private market. The main advantage of buying a private supplemental life insurance policy is that it’s portable, which means you keep the coverage as long as you’re paying the premiums. You can also choose a permanent life insurance policy, so you can be covered for as long as you live or as long as required premium payments are made.

As previously mentioned, in some cases, supplemental term life insurance policies through an employer might be a portable life insurance policy, so if you leave your workplace, you might be able to continue the coverage, but it’s rare.

Is Supplemental Life Insurance Worth It?

In some cases, purchasing supplemental life insurance can be worth it but perhaps not in others, depending on various factors—including how much insurance you already have, the costs, and the limitations.

When offered supplemental life insurance, make sure you understand the policy you’re being offered and the costs. Only then can you know if you should find a better offer on the private market.

FAQ

What is employee supplemental life insurance?

This supplemental insurance policy provides more coverage than the basic plans, up to a limit that varies by company. Typically, maximums range from $250,000 to $500,000.

What is child supplemental life insurance?

Such insurance covers eligible dependents. With this policy, the life of your dependent children is protected. But the amounts can be lower than the other policies available to employees, spouses, or domestic partners.

Do I need supplemental life insurance?

We have considered the question, what is supplemental life insurance? Our advice is to take advantage of your employer’s offer of supplemental life insurance at no cost. But it’s not recommended if you’re healthy and able to qualify for reasonable rates somewhere else.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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