As part of your employee benefits package, your employer may offer a variety of ancillary or supplemental life insurance coverages. Supplemental life insurance is optional coverage that an employer may offer at no cost or may offer as an option for employees to purchase. It is designed to provide additional coverage and is typically associated with a much lower payout than traditional life insurance policies. Supplemental life insurance policies may include things like burial, final expense, accidental death and dismemberment, as well as traditional 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.
How does supplemental life insurance work?
Supplemental life insurance may be offered by an employer, union or other membership-based organization. Typically, employees or members are offered an opportunity to purchase this additional coverage. If supplemental life insurance is offered through your employer, you can typically sign up during your annual benefits enrollment period and often payments are withdrawn directly out of your paycheck.
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 and may offer protection and/or coverage for specific situations or expenses, as is the case with accidental death and dismemberment and burial insurance. Supplemental life insurance may be a good way to pick up some additional life insurance coverage through your place of employment, but may only provide a death benefit limited to a prescribed multiple of your salary.
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. This will allow you to better understand the benefit your beneficiaries would receive in the event of your death. With this information in mind, you can work with a financial professional to ensure you have sufficient coverage and/or assets to protect your loved ones in case the unthinkable were to occur.
It may not be enough coverage
According to 2024 LIMRA Insurance Barometer, 42% of American adults lack life insurance or adequate coverage. 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 may be a limited accidental death and dismemberment (AD&D) insurance policy
An accidental death and dismemberment policy pays out a benefit if the insured party becomes disabled due to a very specific type of injury such as loss of a limb, paralysis or blindness, or dies in an accident.
In many instances, the supplemental life insurance that your employer offers you is an AD&D insurance policy, and shouldn't be confused with a traditional 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.
It may be a burial insurance policy
You may find that your workplace supplemental life insurance is a type of burial insurance policy. Typically, these policies have a very low benefit 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 2024 has been with their employer an average of only 3.9 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 with 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.
Should you get supplemental life insurance?
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. Sometimes a supplemental policy available through your employer may waive a medical exam, so you could qualify even if you have a medical condition. 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.
Getting the right coverage
Consider these questions to help you investigate if supplemental life insurance is right for you.
Q — Does supplemental life insurance cover natural death?
A — It all depends on the type of policy. As mentioned, an AD&D policy only pays a death benefit if the insured is seriously injured or killed in an accident, as defined by the policy. Be sure to read the details of the policy carefully to understand the type of coverage it offers.
Q — Can I cash out my supplemental life insurance?
A — Typically, supplemental life insurance policies do not build case value. However, there may be exceptions, so speak with your human resources representative and read your policy carefully.
Q — What happens to supplemental life insurance when you leave a job?
A — Typically employers offer the benefit of supplemental life insurance to current employees. That means, when you leave the company, you will likely lose your coverage. However, some companies may allow you to continue coverage by buying the group insurance after you leave the job. Speak with your human resources professional to understand the company’s policy.
In many ways, relying on supplemental life insurance alone isn't ideal. You may wish 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, you can get a free online quote in just four easy steps - with no obligation to buy.
Sources:
1. Bureau of Labor Statistics, "Employee Tenure in 2024," September 26, 2024.
2. Insurance Information Institute, "Facts + Statistics: Life Insurance."
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