Cashing Out Supplemental Life Insurance: Is It Possible?

Supplemental life insurance is a common employee benefit that allows workers to increase their coverage beyond their standard group life policies. It is typically offered as an additional layer of protection by employers to enhance coverage levels. This type of insurance is especially useful for those with more substantial financial needs, such as covering a mortgage or ensuring long-term security for their families. While it is a convenient option, there are some limitations to be aware of. For instance, it usually ends when you leave your job, and there may be limited customization options compared to individual policies.

Supplemental life insurance is extra coverage that can be purchased through an employer or organisation

Supplemental life insurance is an extra layer of coverage that can be purchased through an employer or organisation. It is typically offered as an addition to a standard group life policy, allowing employees to enhance their coverage levels. This type of insurance is also known as voluntary group life insurance or voluntary life insurance.

Supplemental life insurance is designed to address the limitations of basic group life insurance, which often only covers a minimal amount, such as one year's salary. By purchasing supplemental coverage, individuals can better protect their family's financial future and ensure their loved ones have enough to cover long-term expenses like mortgage payments or college tuition.

Supplemental life insurance is usually offered at a group rate, which can make it more affordable than a private policy. It often does not require a medical exam, making it accessible to those who want more coverage without undergoing an extensive underwriting process. However, it is important to note that supplemental life insurance is typically tied to an individual's employment, and coverage may end if they leave their job.

Supplemental life insurance can provide higher coverage limits, typically ranging from three to ten times an individual's salary. It also offers the advantage of easy accessibility and generally lower rates due to group pricing. Additionally, spouse and dependent life insurance may be available at low rates.

However, there are also some limitations to supplemental life insurance. The rates tend to increase as the insured person ages, unlike locked-in rates offered by some private policies. Moreover, the coverage is usually only valid as long as the individual is actively working for the company. Supplemental policies also offer limited customisation, with fewer options for riders compared to individual policies. Lastly, employers can change benefits, which may impact the coverage.

When considering supplemental life insurance, it is important to assess your financial obligations, including mortgage payments, outstanding debts, and future expenses like college tuition. Evaluating existing coverage and determining if supplemental insurance is sufficient to meet your family's future needs is crucial. While supplemental life insurance can be a convenient option, it may not provide the same level of flexibility and portability as a private policy.

It is often cheaper than individual insurance and doesn't require a medical exam

Supplemental life insurance is often cheaper than individual insurance and doesn't require a medical exam. This type of insurance is typically offered as an additional layer of coverage on top of an employer's standard group life policy. It is designed to boost the coverage provided by the basic group life policy and can help secure a higher death benefit.

Supplemental life insurance is often more affordable due to group pricing. The rates are typically based on group rates negotiated by the employer, resulting in lower costs for the employees. This type of insurance is also more accessible as it generally does not require a medical exam. Instead, employees may only need to fill out a brief health questionnaire to be eligible for coverage.

The accessibility and affordability of supplemental life insurance make it a convenient option for those who want more coverage without undergoing an extensive underwriting process. However, it's important to note that this type of insurance is usually tied to employment, and coverage may end if the employee leaves the company. Therefore, it is often recommended to consider a private policy or individual coverage to ensure continuous protection.

Supplemental life insurance can be a cost-effective way to increase life insurance coverage, especially for those with health issues. By taking advantage of group rates and bypassing medical exams, individuals can obtain higher coverage limits at lower rates. However, it is important to carefully review the limitations and portability options of employer-sponsored supplemental insurance to ensure it aligns with long-term needs.

You can lose your coverage if you leave your job

Losing your job means losing your employer-sponsored life insurance coverage. This is because life insurance through the workplace is typically offered through a company's group life plan, and if you leave your job, you are no longer part of that group plan. Your former employer is also no longer required to pay for your coverage.

However, some policies may be "portable", meaning you can opt to "port" your coverage and pay your premium directly to the insurance company to keep your coverage active. This option usually needs to be activated within 30-60 days of leaving your job. If your policy is portable, you can choose to renew or end your ported coverage on a monthly or annual basis.

Another option is to convert your group coverage to an individual life insurance policy. This is known as permanent coverage and will result in higher premiums that you will be responsible for paying.

If your policy is neither portable nor convertible, your coverage will end when you leave your job, and you will need to apply for new coverage.

There are typically two components to life insurance offered through an employer or organisation

Supplemental life insurance is designed to boost the coverage provided by the basic group life policy and can provide a higher death benefit. Many employers offer supplemental coverage of three to five times an employee's salary, with some policies extending up to 10 times the salary. This additional coverage can be crucial in ensuring long-term financial security for an employee's loved ones, helping to cover expenses such as mortgage payments, college tuition, or other substantial debts.

One of the advantages of supplemental life insurance is that it generally does not require a medical exam, making it more accessible to employees who want additional coverage without undergoing an extensive underwriting process. However, it is important to note that supplemental coverage, like basic group life insurance, typically ends when an employee leaves the company. Therefore, it may be beneficial to consider purchasing an individual life insurance policy that can provide continuous coverage regardless of career changes.

Supplemental life insurance is a valuable option for employees who want to enhance their financial protection beyond what is offered by the basic group life insurance. By enrolling during open enrollment or eligible life events, employees can increase their coverage limits, often without the need for a medical exam. However, it is important to carefully review the eligibility requirements, compare rates, and check the portability of the supplemental policy to ensure it meets their specific needs and circumstances.

Supplemental life insurance falls into one of three categories: term, permanent or spouse/child coverage

Supplemental life insurance is extra coverage that you can buy at work or through an organisation. It's also known as voluntary group life insurance. Typically, companies offer a basic group policy at no or minimal cost to employees, but for those who want additional protection, supplemental life insurance is a convenient, employer-provided option to enhance coverage levels.

Supplemental life insurance typically falls into one of three categories: term, permanent or spouse/child coverage.

Term

Term life insurance is temporary life insurance that lasts for a stated period (e.g. 10 or 20 years). It's less expensive to buy, and the younger you are, the less it costs. However, group term premiums typically rise over time because once the policy expires, you'd need to renew (buy another policy) when you're older—at a higher price—to continue coverage.

Permanent

This coverage doesn’t expire—it continues as long as you keep paying your premiums. The most common permanent policies are whole and universal life. With whole life insurance, premium payments start out higher than term, but they don’t increase over time; with universal life, you can pay more or less depending on your budget (provided you cover a minimum amount that usually rises each year). Note that if you pay more early on, you can build the universal policy’s cash value—and use that value to cover the policy’s higher costs in the future.

Spouse/child

Your plan may also allow you to buy coverage at the lower group rate for your spouse and/or children.

Supplemental life insurance is designed to boost the coverage your employer’s basic group life policy provides, allowing you to secure a higher death benefit than the base policy alone.

Frequently asked questions