Supplemental Life Insurance: A Smart Financial Move?

Supplemental life insurance is an optional coverage that provides an extra layer of protection on top of the group policy provided by an employer. It is typically purchased through the workplace and can include coverage for oneself, one's spouse, or child. It can also cover payouts in the event of serious injury or accidental death. While it can be a useful add-on, it is important to compare policies and prices with individual term life insurance available on the open market. This is because, in some cases, the optional coverage may have a higher premium than a policy bought independently.

Pros and cons of buying supplemental life insurance through work

Pros of buying supplemental life insurance through work:

• Convenience: Getting coverage through work can be relatively simple. The paperwork is often part of your hiring documents, and HR departments are typically on hand to answer your questions.
• Price: Basic coverage through work is usually free or offered at a low cost for the employee, making it an easy way to get a small amount of coverage.
• Acceptance: Most basic life insurance plans through work are guaranteed, so even people with serious medical conditions can qualify.

Cons of buying supplemental life insurance through work:

• Coverage is tied to your job: Group life insurance is often not portable. This means if you leave your job, you may not be able to take the policy with you.
• Limited choice: Coverage through work tends to be a type of term life insurance, and employers typically only work with one carrier. Therefore, you won’t find the range of policy options that you might find outside of work.
• Low coverage amounts: If you have dependents or a lot of financial obligations, a group life insurance policy could leave you underinsured.
• Premiums aren’t fixed: The premiums for group life insurance go up either on an annual basis or every five years.

Pros and cons of buying supplemental life insurance from a private insurer

Supplemental life insurance is an optional coverage that adds an extra layer of protection to the basic group policy provided by your employer. It can be purchased through work or from a private insurer. Here are some pros and cons of buying supplemental life insurance from a private insurer:

Pros

• Portability: A private supplemental life insurance policy is not tied to your employment, so you can keep the coverage no matter what happens in your working life. This is in contrast to employer-sponsored supplemental insurance, which typically ends when you leave your job.
• Higher coverage limits and wider range of benefits: Private insurers often offer coverage with higher limits and a wider range of benefits than what is available through an employer.
• Flexibility to purchase at any time: With a private insurer, you are not limited to purchasing during an employer's annual enrollment period or after a major life change.

Cons

• Higher premiums: Employers can often negotiate better rates with insurers, so you may pay higher premiums for a private policy.
• More effort to obtain: Obtaining a private policy may require more effort as your age and health will be evaluated more closely.
• Potential denial of coverage: You may be more likely to be denied coverage by a private insurer, especially if you have high-risk factors.

When you might want supplemental life insurance

Supplemental life insurance is a good option if your employer's group life insurance coverage doesn't meet your needs. This type of insurance can cover the policyholder, spouses, and children. Here are some instances when you might want to consider supplemental life insurance:

• Low death benefit: If your current coverage has a low death benefit, supplemental life insurance can be used to increase it.
• Replace income: Supplemental life insurance can be used to replace some or all of your income for your beneficiary's day-to-day expenses.
• Long-term expenses: If you plan to incur long-term expenses, such as mortgage payments or college tuition, you might want additional coverage.
• Family coverage: You might want to include a spouse or child as part of your policy.
• Health challenges: If you're not confident that your health would allow you to qualify for a policy purchased on the private life insurance market, extending your group policy coverage with supplemental life insurance could be a good choice.
• Accidents: An accidental death and dismemberment add-on could cover you if you have an accident at work.

Supplemental life insurance is typically purchased through your employer, but it can also be bought directly from an insurer. It's important to note that coverage options may vary, and it's recommended to compare the rates and benefits offered by different providers before making a decision.

How much supplemental life insurance you should buy

The amount of supplemental life insurance you should buy depends on your budget and the needs of your beneficiaries. Consider the number of dependents you have, including non-earning spouses, children, and ageing parents under your care. You should also factor in long-term expenses such as your mortgage and your children's college tuition.

For example, if you earn $50,000 annually and your employer's basic group life insurance has a complimentary $50,000 death benefit, your beneficiaries will receive a one-time $50,000 payout if you die while working for that employer. If you want to provide your beneficiaries with a payout to replace five years of your income, you might choose to purchase $200,000 (or more) in supplemental life insurance coverage on top of the basic life insurance available through your work.

You can also buy supplemental life insurance to cover specific costs, such as burial fees, or to provide additional coverage for a spouse or child not included in your basic plan.

Use a life insurance calculator to find out how much coverage you need.

What are the benefits of supplemental life insurance?

Supplemental life insurance can be a great way to bolster your existing life insurance coverage and ensure your loved ones are provided for after your death. Here are some of the key benefits:

Increased Coverage for Dependents

Supplemental life insurance can increase the death benefit for your beneficiaries, providing additional financial support for your loved ones. This is especially important if your current coverage is insufficient to cover their long-term needs, such as mortgage payments or college tuition. It also allows you to extend coverage to your spouse or children, ensuring their financial security in the event of your untimely demise.

Flexible Coverage Options

Supplemental life insurance offers flexibility by allowing you to add different types of insurance to your existing policy. For example, if your primary insurance is term life insurance, supplemental coverage can give you the option to purchase permanent life insurance. Permanent life insurance offers lifetime coverage and often includes a cash value component that can be borrowed against or withdrawn while you're still alive.

Cost Savings

Purchasing supplemental life insurance through your employer can often result in cost savings. Employers typically negotiate lower group rates with insurers, which can make the coverage more affordable for employees. Additionally, premiums can usually be conveniently deducted directly from your paycheck.

Accessibility

Supplemental life insurance may be easier to obtain than a separate individual policy, especially if you have pre-existing health conditions. In most cases, you won't be required to undergo a medical exam or answer extensive health questions to qualify for supplemental coverage. This makes it a viable option for those who may struggle to obtain traditional life insurance due to age or health issues.

Peace of Mind

Supplemental life insurance provides peace of mind by ensuring that your loved ones will be financially secure in the event of your untimely death. It can help cover burial costs, pay off outstanding debts, and provide ongoing financial support for your dependents. This added layer of protection can be invaluable during an already difficult time for your family.

Frequently asked questions