While basic life insurance may not provide enough coverage to protect your family, supplemental life insurance can help fill in the gaps. Is it right for you?
Updated:
Apr 13, 2024
Written By
Kristin Peters
Kristin Peters
Edited by
Veronika Jelenik
Veronika Jelenik
Supplemental life insurance can provide you with coverage in addition to an existing life insurance policy and may be purchased through your employer or a separate company. Where basic life insurance offers limited coverage, supplemental life insurance can give your family extra financial security when you die or if you’re physically impaired in an accident and are unable to work.
The cost of supplemental insurance can vary by your health, age and how you buy the policy. Generally, it’s cheaper to buy insurance through your employer as part of a group plan. However, coverage options could be limited compared to the insurance you may be able to get on your own through an individual policy.
What Is a Supplemental Life Insurance Policy?
Supplemental life insurance augments the primary life insurance policy provided by your employer, and it’s typically offered as a group life insurance plan option. Many employers provide life insurance at no or a very low cost as part of an employee benefits package — but the coverage could fall short.
The death benefit on a basic insurance policy is often up to one or two years’ salary or even less. If you die, a payout of just a few thousand dollars or a year’s salary might not be enough to cover your funeral and other final expenses, making it difficult for your family to recover financially after losing your income.
Basic life insurance policies are typically term life insurance policies that provide coverage for a certain number of years, or a term. These policies typically don’t offer the flexibility to personalize your set coverage term — common terms usually last 10, 20 or 30 years — with living benefits or other policy riders, like cash value that you can draw from or coverage if you become dismembered or terminally ill.
You can, however, purchase a supplemental term, permanent life insurance or a whole life policy to help fill in any coverage gaps.
Aside from increasing your death benefit, supplemental life insurance coverage options may include:
- Spouse or partner life insurance: Provides coverage for a spouse or partner
- Child life insurance: Provides coverage for children
- Burial insurance: Provides payouts for funeral and burial costs
- Accidental death and dismemberment insurance (AD&D): AD&D insurance provides coverage if you lose a limb, become blind or are paralyzed after an accident
Can I Get Supplemental Life Insurance Through My Job?
You can get supplemental life insurance through your job and benefit from lower premiums and a simple underwriting process. However, without additional underwriting, your available coverage amount might be limited. Depending on your plan terms, you might not be able to keep your policy if you leave your job.
How Much Supplemental Life Insurance Do I Need?
Financial experts and insurance companies recommend having seven to 10 times your annual salary in life insurance, so if you earn $75,000 per year, the guideline would be $525,000 to $750,000 in coverage. However, the amount of insurance you need can depend on factors like how many dependents you care for, the property you own, the debt you have and the bills you would leave behind if you died.
Below are six factors to consider when determining how much life insurance coverage you need.
- Your age: Older adults may have accumulated more property, debt and financial responsibilities, and a higher supplemental life insurance policy may be needed to provide funds for surviving family members to cover those financial obligations. Younger adults with fewer expenses may need less coverage.
- Your debt: The government discharges federal student loans when you die. But, your family may have to pay other types of loans with funds from your estate, or cosigners will have to foot the bill. Increasing your life insurance payout could help beneficiaries pay off your debt or other personal finances.
- How much you earn: If you’re the high-income earner of your household, purchasing a larger amount of supplemental life insurance may be necessary to provide a financial cushion for your family after your death and loss of income.
- How many children you have: When choosing the right amount of coverage, consider your children’s living expenses and future education costs. Purchasing additional coverage could help surviving partners or relatives properly care for multiple children, children heading off to college or children with disabilities.
- How many relatives you provide for: If you care for extended family or an aging parent, consider the ongoing costs when choosing a coverage amount.
- Your legacy plan: If you want your life insurance to go beyond covering basic living expenses to provide an inheritance to beneficiaries, a larger amount of coverage may be needed to achieve your goal.
Who Needs Supplemental Life Insurance?
People who financially provide for others — whether that’s a spouse, children or relatives — should consider supplemental life insurance. Here are some potential reasons you may consider the extra coverage:
- Supplementing your basic life insurance to increase your death benefit can provide beneficiaries with a larger lump sum payout to cover expenses like mortgage payments or college tuition when you die.
- It can help reduce your family’s financial burden during bereavement.
- Additional life insurance coverage could provide an inheritance for heirs that can be used to create generational wealth.
- You can add your partner as a policyholder on a supplemental policy, so if that partner passes, the coverage could provide you the cash you need to handle costs.
On the other hand, suppose you’re young, single and have no children or any relatives depending on you for financial support. In that case, an employer’s basic life insurance policy could be enough to cover your final living expenses. With fewer bills and fewer people relying on you, a year’s salary of $50,000 or $75,000 may be sufficient to pay for your funeral arrangements and any end-of-life medical costs.
How To Buy Supplemental Life Insurance
Supplemental life insurance may be an optional employer benefit you can sign up for and pay premiums on, or you can purchase life insurance through a separate company. The following sections outline what you need to know when buying supplemental coverage from an employer or other provider.
Through Your Employer
During benefits enrollment, employers may give you the option to choose supplemental life insurance. As a note, the application may involve answering questions about your health. After you are approved for a policy, your employer will typically take premium payments directly from each paycheck. Depending on the company, you may be able to take your insurance with you if you leave the job, but you should find out about the portability of your policy when signing up.
The benefit of employer-provided supplemental life insurance is that it’s easy to set up, and you may not need a medical exam to enroll. However, if you are not a new employee, you may need to wait until your employer’s open enrollment period to sign up or change your policy. Group plans also tend to have more affordable rates than individual policies, but note that rates for employer-sponsored supplemental life insurance plans usually start low and increase as you age.
Directly with a Provider
If you choose to get supplemental insurance from another life insurance company, you’ll have to shop around and apply by answering questions about yourself and your health. When purchasing an individual policy, a medical exam may be required, which can include blood tests and blood pressure screenings.
Rates are generally higher for life insurance you get on your own compared to an employer’s group policy. However, you can personalize the policy based on your coverage needs. Plus, you can shop around and compare rates with multiple insurance providers to find the best deal on the right coverage, and that coverage can stay with you if you end up leaving your job.
Supplemental Life Insurance Cost
The cost of supplemental life insurance through an employer can vary depending on how old you are. Employees typically pay a certain amount per dollar of coverage — such as $0.20 per $10,000 in coverage — and you pay the premium each month through your paycheck.
Let’s say you’re 30 and choose a $250,000 supplemental policy that costs $0.18 per month for every $10,000 in coverage. Your premium for employer-sponsored insurance would be $4.50 per month or $54 per year. If your rate increases to $0.90 per $10,000 at age 50, the policy would cost $22.50 per month and $270 per year.
Rates for supplemental life insurance from private insurers can depend on the policy term you choose, where you work, your age, your family’s health history and your physical health. On average, a 30-year-old female in good health could pay $19 per month or $228 per year for a 20-year term life policy, while a 30-year-old male might pay $22 per month or $264 per year, according to Fidelity RapidDdecision® rates the Guides Home Team obtained.
Fortunately, there are ways you may be able to reduce your rate on individual insurance policies. Taking steps to improve your health like quitting smoking may help lower life insurance rates, or bundling your policy with other insurance products like auto or home insurance could result in savings on your premium.
Our Conclusion: Is Supplemental Life Insurance Worth It?
Supplemental life insurance can be worth it if you have dependents such as a spouse, children or relatives. They can use the funds from a supplemental policy to finance your funeral costs and other end-of-life expenses.
However, a supplemental policy may be unnecessary if you do not have dependents or financial obligations like a mortgage. It is best to review your life insurance policy regularly and ensure sufficient coverage for your end-of-life expenses. If you have questions about whether a supplemental policy is right for your situation, we recommend speaking with a financial adviser or life insurance agent.
Frequently Asked Questions About Supplemental Life Insurance
Supplemental insurance can provide a lump sum payout to beneficiaries when you pass away and may offer living benefits like cash value that you can use for living expenses and additional coverage if you have a tragic accident. This extra coverage can provide a wider safety net for your loved ones when they are taking care of your final living costs and after-death expenses.
Supplemental life insurance is worthwhile if you financially support a spouse, children or other dependents and need more coverage than what a basic policy from your employer offers. Basic life insurance policies may provide coverage worth one to two years of your annual salary, which might not be enough to handle personal and household affairs after you die.
Supplemental life insurance differs from primary or basic life insurance in that it can provide a greater death benefit plus coverage for accidents and other family members. You can purchase additional coverage through your employer or another company.
The payout from supplemental life insurance can cover the cost of your funeral, outstanding college loans or living expenses for beneficiaries in the event of your death. Optional supplemental life insurance benefits, like living benefits or coverage for accidental death and dismemberment, can offer additional coverage if an unexpected event makes you unable to work.
