What Is Supplemental Life Insurance?

Supplemental Life Insurance DefinitionSupplemental Life Insurance Definition

Key Takeaways

  • Employees can easily add or change their supplemental life insurance during open enrollment without any medical exams or health questions. Pre-existing conditions won't affect coverage approval. Depending on the plan, sign-up rules may vary outside of this enrollment window.
  • Supplemental life insurance provides extra coverage for employees beyond what the employer offers. It may also allow employees to buy life insurance for their spouse and children. Some programs may include coverage for accidental death.
  • Supplemental life insurance is linked to a person's job and may disappear if they switch jobs or retire. Some programs offer portable group life policies for people to buy similar coverage after leaving their job.
  • Supplemental life insurance differs from individual life insurance in several ways. While the options for supplemental life insurance are limited to what's provided by the employer, individual policies allow more freedom of choice.
  • Supplemental life insurance may be easier to get for those with health issues or older age because they don't require health underwriting. However, the coverage may be lost if a person changes jobs, making individual life insurance a safer long-term option.
  • The choice between supplemental and individual life insurance depends on factors such as the quality of the group plan, available policies, coverage limits, costs, and whether the policy can be retained after leaving the current job.

Employers often set up group life insurance as a workplace benefit for their employees, but the plans don't always offer total coverage. If you are enrolled in one of these programs, you may be able to purchase extra coverage for yourself, known as supplemental employee life insurance.

Here's a look at supplemental life insurance and what it could be used for.

What Is Supplemental Life Insurance?

When an employer sets up a group life insurance program, they might give some amount of coverage for free or nearly free as they help pay for the premiums as part of your compensation. Employer-paid life insurance typically maxes out at a relatively small amount, like one or two times your salary.

Besides this coverage, the program could also give you the option to purchase supplemental (additional) life insurance coverage. You can add more life insurance benefits by paying the costs yourself.

How Do You Qualify?

Workplace benefits typically have an open enrollment window each year when you can sign up and change your coverage for things like health care, disability and life insurance. During that time, you can sign up for supplemental life insurance or, if you already have it, adjust your coverage.

If you sign up during the window, there usually is no health underwriting. This means you wouldn't have to take a medical exam or answer health questions to join. It also means you couldn't be denied coverage because of a preexisting health condition.

Outside of the open enrollment window, whether you can sign up depends on the plan. Some programs don't allow it while others may let you sign up but ask that you go through health underwriting.

What Can It Be Used For?

There are a few ways to use supplemental employee life insurance depending on your program's options:

  • You can buy more coverage for yourself beyond the amount provided for free by your employer. While what you need depends on your personal circumstances, a typical person has seven to 10 years' salary in coverage.1 Supplemental life insurance can get you there.
  • Your employer's supplemental life insurance program may allow you to buy life insurance for your spouse and minor children.
  • The program may offer extra coverage for accidental death, a benefit that pays out if you get seriously hurt or killed in an accident. 

What Happens if You Change Jobs?

Since supplemental employee life insurance is a workplace benefit, it's connected to your current job. What happens to your coverage if you change jobs or retire depends on the program. With some programs, you simply lose your coverage. Others set up group life policies to be portable, meaning you might be able to purchase an individual policy for the same type of coverage after you leave.

How Does It Compare With Traditional Life Insurance?

Another way to get extra coverage is by signing up for your own individual life insurance policy outside of work. There are pros and cons to this approach. With individual policies, you can pick exactly what you'd like to buy, whereas with supplemental life, your options are limited to what's provided by your employer.

For example, a group life insurance program might only offer temporary term life insurance, but on the individual market, you could also buy permanent life insurance, which doesn't expire and earns cash value that you can use while still alive.

Supplemental life insurance limits the amount you can buy, while individual life insurance allows more. The individual policy is yours, so you keep it even after changing jobs.

On the other hand, with individual life insurance policies, you typically need to go through health underwriting. If you have health issues, this could mean paying more for your coverage, and it's possible you won't qualify. Supplemental life insurance policies can also offer group discounts, so the premiums could be lower versus an individual policy.

When Should Someone Use Supplemental Life Insurance?

Whether you should consider supplemental life or a traditional, individual policy depends on the quality of your group plan, the policies available, the coverage limits, the costs and whether you can keep the policy after leaving your job.

In general, those who are older and have health conditions may find it easier to qualify and at a better rate with group supplemental coverage while those in good health may qualify for a lower price by going through medical underwriting for an individual plan.

If your supplemental insurance program won't let you keep your coverage after changing jobs, you may want to set up individual coverage as a backup even if the supplemental insurance program is generous. Otherwise, you could get stuck without life insurance after changing jobs.

For more help understanding what is supplemental life insurance, consider meeting with a financial professional. They can help you compare the details of your workplace program against the individual market so you can find the best fit.

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  1. Ultimate guide to retirement: How big should my life insurance policy be? https://money.cnn.com/retirement/guide/insurance_life.moneymag/index11.htm.

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