What is supplementary life insurance?
Supplemental life insurance is designed to supplement an existing policy by filling gaps in coverage. This type of coverage is optional employee-paid life insurance that is usually offered by an employer. Supplemental life insurance policies can also be taken out outside the workplace and directly with insurers.
All prices shown are indicative only. You should contact the insurance company or insurance agent directly for applicable quotes.
*Monthly costs are for a 35-year-old woman for a $1,000,000 coverage policy with a 20-year term.
What is a supplementary life insurance policy?
Many companies offer group life insurance at little or no cost to employees as part of a benefits package. However, the payouts are usually very low – the death benefit can be only one or two times the employee’s annual salary or a fixed amount of $20,000 or less.
Because this type of coverage is so limited, an employer may also offer workers the option of purchasing what is called supplemental life insurance. This can extend coverage to a spouse or child, add accident protection, provide for end-of-life costs, or increase your policy’s death benefit. Death benefits of $5,000 to $1 million or more may be available, depending on the type of policy and its purpose.
Unlike work-based group life insurance, supplemental life insurance is an additional cost benefit that you must pay out of pocket, whether you purchase it through your employer or a private insurer. . In some cases, you may be required to complete a health questionnaire or pass a medical exam before purchasing coverage.
Can I take out supplementary life insurance through work?
Employers typically offer supplemental life insurance as an optional benefit for employees who want more coverage than is offered by a group life insurance policy. In most cases, you can only get this coverage during an employer’s annual benefits enrollment period or if you’ve gone through a major life change, such as getting married or having a child.
Supplemental life insurance policies can be offered as:
- Term life insurance. Also called term life insurance, this type of coverage has a fixed term, usually between one and 30 years.
- Permanent life insurance. These policies offer lifetime coverage, guaranteed or adjustable premiums (depending on the type of policy) and a cash value component. Premiums are generally higher than for term insurance.
Supplemental life insurance may also be available as a top-up or rider to your group life insurance policy, for example:
- Higher death benefits. You may be able to increase your policy limit by a higher multiple of your annual salary or by a specific dollar amount.
- Coverage for your family. You may be able to add your spouse, domestic partner or child to your policy. However, death benefit amounts are generally lower than they would be for you.
- Funeral insurance. A final expense policy aims to provide money for end-of-life expenses such as medical bills or funeral expenses.
- Protection in the event of accidental death and dismemberment (ADD). This type of coverage provides compensation in the event that you are killed or maimed in an accident.
Advantages and Disadvantages of Purchasing Supplemental Life Insurance Through Work
One of the benefits of purchasing supplemental life insurance through your job is that premiums can be lower than with a private insurer because employers can negotiate lower rates. Another advantage: the bonuses are usually automatically deducted from your salary, which means that you don’t have to worry about making the payments yourself.
The main downside is that employer plans are limited to a few options that may not meet your needs. Another limitation to purchasing supplemental life insurance through work is that it is not transferable in most cases. If you quit your job, your coverage will end, along with other employer-provided benefits.
Can I take out supplementary life insurance with an insurance company?
Many private insurers sell supplemental life insurance policies that can be used to supplement a workplace group life insurance policy. Options include:
- Term or permanent life insurance for a partner or dependent
- Funeral insurance for end-of-life expenses
- Accidental death and dismemberment (ADD) coverage
Pros and Cons of Purchasing Supplemental Life Insurance from a Private Insurer
One of the benefits of purchasing private supplemental life insurance is its portability. As long as you maintain the policy and pay your premiums on time, your coverage is guaranteed. It cannot be revoked because you change jobs and you do not have to wait for an annual enrollment period to purchase a policy.
Depending on the insurer, you may be able to get higher limits and choose from a wider range of term or permanent policies. However, you may be scrutinized more closely than you would under an employer-sponsored plan since the risk is not spread among all employees. Your age and health, or that of the insured, could make a big difference to eligibility and premiums.
How much supplemental life insurance should you purchase?
Everyone’s life insurance needs are different. A good way to determine how much supplemental life insurance you might need is to take a close look at your finances and long-term needs. Factors to consider include:
- Your partner and dependents: Do you have (or do you plan to have) children or dependents? How will your partner balance childcare and work if you die? How much of a cash cushion will be helpful to accommodate your loss? Some insurers recommend choosing coverage for 10 to 15 times your annual pre-tax salary.
- Higher education expenditure: A year of tuition and fees at a four-year institution can range from $10,700 to $30,800 on average, according to The College Board. If you plan to pay for someone’s college education in the future, you’ll need to budget for that expense as well.
- Debts such as a mortgage, car loan, or credit cards
- End of life costs: Median funeral and burial costs can reach $8,500, according to the National Funeral Directors Association.
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