As part of your employee benefits package, your employer may offer a variety of ancillary or supplemental insurance coverages and can include dental and vision, disability, as well as life insurance. Supplemental life insurance can be a good way to take advantage of some additional protection for your family. However, before you rely exclusively on what you have through work, there are a few things you need to know.
What you need to know about supplemental life insurance
If you have an employer sponsored life insurance policy, it's important to find out exactly what type of policy you have, the limit, as well as how your death benefit is determined. Here's why…
Differences between basic and supplemental life insurance
Basic group life insurance may be offered by your employer and offer a death benefit to your beneficiaries at no cost to you. Typically, this coverage is limited. In some cases, employers offer supplemental life insurance, which is additional coverage available to you for purchase through your place of employment.
It may not be enough coverageApproxmiately 60 percent of people in the United States have life insurance coverage. Among those, 20 percent say they don't believe they have enough coverage.2 Why? Because many life insurance policies that are offered through employer sponsored plans are typically only one or two times your annual salary. For example, if you earn $50,000 a year, your employer may offer you a $100,000 policy at no cost. However, if you have a young family, you may require something closer to the $500,000 mark to get the coverage that you need. For many Americans, this limit may not be nearly enough to meet the financial needs of their loved ones if they were to unexpectedly die.
It's a limited accidental death and dismemberment (AD&D) insurance policyIn many instances, the supplemental life insurance that your employer offers you is in reality an AD&D insurance policy, and shouldn't be confused with a standard life insurance policy. While an AD&D policy provides benefits to your beneficiaries when you die, the caveat is that your death must be caused by an accident. Although AD&D benefits will vary among insurers, most will only payout benefits if you were to lose a limb, your eyesight, or hearing as a direct result of a covered accident.
It's a burial insurance policyYou may find that your workplace supplemental life insurance is a type of burial insurance policy. Typically, these policies have a very low benefits associated with them and could be anywhere between $5,000 and $10,000 - depending on what your employer offers. The purpose of these policies is to provide your family with enough money to cover your final expenses when you die.
It's probably not portable
Do you plan on staying with the same employer for the rest of your life? While that may be your preference, it may not be the reality. In fact, according to the According to the U.S. Bureau of Labor Statistics, a person employed with a company in 2020 has been with their employer an average of only 4.1 years.1 Whether you are let go or you leave your job voluntarily, the supplementary life insurance that you have may terminate. That means you may need to reapply for new coverage (either at your new job or independently from a life insurance company) based on your current age and health status. This may not seem like a significant problem, but certain health conditions could make it difficult to find an affordable policy, or even make it impossible to qualify for coverage.
Generally speaking, most employer-sponsored supplemental life insurance policies are not portable - meaning that you won't be able to take it with you when you leave your job. If you do have coverage through work, find out if you have the option to pay an additional premium to port some or all of your benefits. If you don't, you may want to consider buying a policy outside of what you have at work.
Getting the right coverage
Any life insurance is better than none at all. So if the supplementary life insurance offered through your employer sponsored group plan is affordable, then it may very well be worth the low price. However, it's important that you take the time to evaluate whether or not what you are being offered is going to be enough coverage, and more importantly, that it's the type of coverage that is going to meet your needs - now, and in the future.
In many ways, relying on supplemental life insurance alone isn't ideal. A better option might be to purchase a life insurance policy independent of what your employer offers. Here are a few reasons why:
- You get a policy that you'll have regardless of who your employer is
- If you select a permanent policy you'll have your policy for as long as you live (as long as required premium payments are made)
- You select the death benefit - NOT your employer
- You can choose from a variety of policy types so that you're only paying for coverage that meets your individual needs
- You may have the option to enhance your coverage with a variety of policy riders
Securing additional life insurance outside of the supplemental life insurance that your employer offers may not be as hard as you think. In fact, at Protective Life, you can get a free online quote in just four easy steps - with no obligation to buy.