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.
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through your employer, you can typically sign up during your annual benefits enrollment period and often payments are withdrawn directly out of your paycheck.
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.
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.
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.
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.
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.
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.
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.
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:
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