Supplemental Life Insurance: Do You Need It?

Supplemental life insurance is an extra layer of coverage that can be added to an existing policy. It is typically purchased through the workplace and can include coverage for a spouse or child, or coverage that pays out if you're seriously injured or killed in an accident.

Supplemental life insurance is a good option if your employer's group life insurance coverage doesn't meet your needs. This could be because the death benefit is too low, or because you want to add coverage for specific costs, such as burial fees, or for another person, such as a spouse or child.

However, it's important to note that supplemental life insurance purchased through an employer may not be portable, meaning that if you leave your job, you could lose your coverage. It may also have limited coverage options and require a medical exam.

As an alternative, you can buy supplemental life insurance directly from a private insurer. This option offers higher coverage limits and a wider range of benefits, and the policy will continue no matter what happens in your working life. However, it may require more effort to obtain and could be more expensive.

Should I get it through my employer or privately?

Supplemental life insurance is an optional extra layer of coverage that you can purchase in addition to your basic group policy. It is usually available through an employer's benefits package or directly from an insurer.

There are several factors to consider when deciding whether to get supplemental life insurance through your employer or privately.

Getting Supplemental Life Insurance Through Your Employer

Employer-provided supplemental life insurance is often cheaper because employers can negotiate lower rates than an individual buying privately. Premiums can be deducted directly from your paycheck, and it may be a better option for those who may have difficulty qualifying through an insurer due to age or illness.

However, coverage options may be limited, and you may be required to undergo a medical exam to obtain coverage, which may not be ideal if you have health concerns. Additionally, employer-provided supplemental coverage is typically not portable, meaning it ends when you leave your job.

Getting Supplemental Life Insurance Privately

Purchasing supplemental life insurance from a private insurer offers more flexibility and portability. You can choose from a wider range of coverage options and higher limits, and your policy will continue regardless of your employment status. Private coverage can be purchased at any time and is not limited to an employer's annual enrolment period.

However, you will likely pay higher premiums as employers generally negotiate better rates. You may also be more likely to be denied coverage, especially if you have high-risk factors. Obtaining private coverage may also require more effort as your age and health will be evaluated more closely.

In conclusion, the decision to get supplemental life insurance through your employer or privately depends on your specific needs and circumstances. Employer-provided coverage may be more convenient and affordable, but private coverage offers more flexibility and portability. It is important to carefully consider the pros and cons of each option before making a decision.

What are the pros and cons of supplemental life insurance?

Supplemental life insurance is an extra layer of coverage that can be added to an existing policy. It is typically purchased through the workplace and can include coverage for a spouse or child, or coverage that pays out if you are seriously injured or killed in an accident.

Pros of Supplemental Life Insurance

• It is usually cheaper than buying privately because employers can negotiate lower rates with insurers.
• Premiums can be deducted directly from your paycheck.
• It can be a better option for those who may have difficulty qualifying through an insurer due to age or illness.
• There is likely no medical exam required to obtain coverage.
• You may be able to get coverage for your family.

Cons of Supplemental Life Insurance

• Coverage options might be limited.
• Coverage is not usually portable and ends when you leave your job.
• It may require a medical exam to obtain coverage, which may not be ideal if you have health concerns.
• You might end up spending more on insurance later as, when it comes to individual policies, the average cost of life insurance rises as you age.
• You may be limited in your options as there are typically fewer opportunities to customize supplemental life insurance than with individual, privately-purchased policies.
• It may not be enough to cover your needs.

What are the different types?

Supplemental life insurance is typically purchased through an employer and can include the following types:

Supplemental employee life insurance

This type of insurance adds coverage to your existing policy, with higher limits than basic plans. While maximum coverage amounts vary by company, they typically hover around $500,000 but can reach into the millions.

Voluntary spouse life insurance

This type of policy covers the life of a spouse and, in many cases, a domestic partner. Death benefit amounts are usually lower than those for the employee.

Supplemental child life insurance

This type of insurance covers eligible dependents.

Supplemental accidental death and dismemberment insurance

This type of insurance pays out if the policyholder dies or is seriously injured in an accident.

Supplemental life insurance can also include burial insurance, which provides money for end-of-life costs such as medical bills or funeral costs, and permanent life insurance, which offers lifetime coverage and a cash value component.

It's important to note that the specific types of supplemental life insurance offered may vary by employer.

How much should I buy?

The amount of supplemental life insurance you need depends on your financial situation and long-term needs. Here are some factors to consider when deciding how much coverage to buy:

• Income and Dependents: If you have dependents, such as a spouse, children, or aging parents, who rely on your income, you may need more coverage. Consider how much income they would lose if you were no longer around and how much of a financial cushion they would need to adapt. Some experts recommend choosing coverage of 10 to 15 times your annual pretax salary.
• Education Expenses: If you plan to pay for higher education for your children or spouse, factor in these future costs. According to The College Board, a year of tuition and fees at a four-year institution can range from $10,700 to $30,800 on average.
• Debts and Loans: Consider any outstanding debts or loans, such as a mortgage, car loan, or credit card debt, that your dependents would be responsible for if something happened to you.
• End-of-Life Expenses: Funeral and burial costs can be significant. According to the National Funeral Directors Association, median funeral and burial costs can be as high as $8,500.
• Online Calculators: You can use online insurance calculators to get a more precise estimate of how much coverage you need based on your specific circumstances.
• Human Life Value (HLV): Some financial representatives use the HLV philosophy to calculate the amount of insurance needed. This method considers your current income, future income potential, age, occupation, and projected working years.
• DIME Formula: This formula takes into account your Debt, Income, Mortgage, and Education expenses. You can total these amounts, along with your desired salary for the number of years your family needs protection, to determine your desired coverage amount.

Remember, the amount of coverage you need depends on your unique circumstances. Review your financial situation and consider seeking advice from a financial professional to ensure you have adequate protection for your loved ones.

Is it worth it?

Supplemental life insurance is worth considering if you want to expand your coverage beyond your own life and ensure your loved ones are provided for in the event of your unexpected death. It can also be useful if you want to cover specific costs, such as burial fees, or if you want to add coverage for a spouse or child.

Supplemental life insurance is typically purchased through the workplace and can be cheaper than buying privately because employers tend to negotiate lower rates than individuals buying privately. It's also convenient, as premiums can be deducted directly from your paycheck. It can also be a good option for those who may struggle to qualify for insurance due to age or illness.

However, it's important to note that coverage options may be limited, and you may need to undergo a medical exam to obtain coverage, which may not be ideal if you have health concerns. Additionally, coverage is usually not portable, meaning it ends when you leave your job.

Before deciding, it's essential to compare the supplemental life insurance offered by your employer with other insurance products available on the individual market. Consider your specific needs, such as the number of dependents, debts, and long-term expenses, to determine if supplemental life insurance is worth it for your situation.

Factors to consider:

• Cost: Supplemental life insurance through your employer may be cheaper due to negotiated rates, but it's important to compare costs with individual policies.
• Coverage options: Supplemental life insurance may offer limited coverage options, so ensure it meets your specific needs.
• Medical exam: You may need to undergo a medical exam for supplemental life insurance, which can be a factor if you have health concerns.
• Portability: Supplemental life insurance through your employer usually ends when you leave your job, so consider the benefits of a portable policy.
• Specific needs: Evaluate your unique situation, including dependents, debts, and long-term expenses, to determine if supplemental life insurance adequately covers your needs.

Frequently asked questions