Learn More about Supplemental Life InsuranceAn overview of supplemental life insurance and adding an extra layer of coverage to an existing policy.
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If you already have a basic life insurance policy, as many people do, finding additional or supplemental coverage may be something you’ve considered.
Supplemental coverage could help with:
Something specific that you need coverage for
You need coverage if you leave or get fired from your current job.
In this article, we’ll go over what supplemental life insurance coverage is, why it’s helpful, how to get it, and other key factors to consider when thinking about supplemental coverage.
What Is Supplemental Life Insurance?
Supplemental life insurance is a policy that can be bought through your work or through a private insurer. It acts as an additional layer of life insurance on top of an existing policy.
The existing policy to supplement is typically a group life insurance policy that the employer already has in place.
Supplemental life insurance coverage could count as any kind of secondary life insurance policy that offers a policyholder added protection for events that aren’t covered by their primary life insurance.
A supplemental life insurance policy can include:
Coverage you buy in addition to your basic policy
Life insurance for your spouse or child
Coverage that pays out if you get seriously hurt or killed in an accident
Supplemental Life Insurance through Your Employer
Additional life insurance coverage is usually bought through work or a private insurance company and is sometimes called ‘employee-paid’ or ‘voluntary life’ insurance.
Supplemental life insurance, on the other hand, is dependent on the individual’s circumstances and what the beneficiary plans to get out of the coverage. A person can buy supplemental insurance on their own through a private insurer or get it through their business, union, or organization.
Supplemental life insurance can be a helpful add-on to your health coverage, as many other life insurance policies are difficult to buy if you already have a pre-existing health condition.
What Types of Life Insurance Are Supplemental?
Supplemental life insurance is very easy to buy. However, with the number of private insurance companies, it can be difficult to pick which one to go with.
But this doesn’t mean it isn’t worthwhile finding a private supplementary plan outside of work. If you’re healthy, your premiums may not be much higher than with your company’s group term life policy.
Additionally, your coverage isn’t dependent on your employer or employment status. If you continue to pay your premiums, your policy will remain in place
Here are the common supplemental insurance policies you can buy:
Child Life Insurance for Dependent Children
Child life insurance is a policy that a parent or guardian can take out to provide coverage for any dependent children they may have.
If the policyholder-caregiver were to die, this policy will provide financial support for children that were financially reliant upon the caregiver.
This insurance plan can be added on top of your basic life insurance plan as a supplemental policy. This supplement life insurance plan is ideal for parents or caregivers who want to ensure that their children are covered.
Final Expense Life Insurance
Final expense insurance is a type of whole life insurance with a smaller coverage amount but less strict criteria for qualifications.
Final expense life insurance is a type of permanent life insurance that requires either monthly or annual premium payments, and in return covers what is known as the death benefit.
This type of policy is typically a more affordable way to cover final expenses such as outstanding debts, taxes, funerals, and burial costs.
Final expense insurance also doesn’t require a medical exam to qualify, making it easier to get.
What is a Death Benefit?
A death benefit is the term for the payout amount that beneficiaries will receive after the insured's death.
Death benefits are tax free and can be paid out in different ways, such as:
Retained asset accounts
Short- and Long-Term Disability Insurance
Disability insurance can replace some of your income if an injury or illness prevents you from working.
The insurance won’t cover your whole paycheck, but is designed to help you cover your household expenses during the period you cannot work.
There are two types of disability insurance: short term and long term.
Short-term disability covers temporary illness or injuries that prevent or impact your ability to work. It typically pays between 40% and 60% of your income.
Usually, you will be covered for three months, but some policies may last longer. The average cost for short-term disability insurance is 1-3% of your annual salary.
Long-term disability insurance covers you if you are affected by a disability or injury that prevents you from working for months, years, or permanently.
The benefits of this insurance will vary but are typically designed to replace between 50% to 80% of your income.
The duration is dependent on the plan you get and some will cover specific ranges. For example, some cover up to 10 years while others will continue to pay until the age of 65.
Most long-term disability policies will only begin paying if you have been unable to work for six months or more. Short-term disability insurance can help you bridge this gap until long-term insurance is activated.
For more information, check out our article on Long Term vs Short Term Disability.
Accidental Death and Dismemberment (AD&D) insurance provides coverage for any death which is caused by an accident. It also has the benefit of payout for the loss of a limb or other major permanent injuries like paralysis or the loss of sight.
If the policyholder dies in an accident, the beneficiaries of the policy will receive a one-time, lump-sum payment.
If the policyholder had a disfiguring injury they would receive what are called ‘living benefits’, where the payment amount and method will depend on the policy and extent of the injury.
What Are Living Benefits?
Living benefits means that you can access part of your death benefits while you’re still alive. You can access such benefits when medical events such as terminal illness, chronic illness, or permanent disability occur and you need money to cover your bills.
However, not all insurance policies cover living benefits options. While some policies have built-in living benefits, this is not the case for every insurance company.
You can also purchase an AD&D insurance plan that covers your family in the case of accidental death or injury.
For this form of supplemental life insurance, It’s important to note that different insurance providers define “accident” differently. What constitutes an accident for an AD&D policy may be more complicated than you might think.
A List of What AD&D Does Not Cover
Death caused by extreme sports or high-risk activities (racing, mountain climbing, etc.)
Death or injury from purposely using inhalants, or ingesting poison or other harmful chemicals
Death or injury sustained as a result of willfully participating in a riot
Death or injury sustained in war
Death or injury sustained during the commission of a crime
Death in which illness—including mental illness—was a complicating factor
Death while driving under the influence of drugs or alcohol
Suicide or self-inflicted injuries
Head over to PolicyScout’s life insurance hub to find and compare the various providers in order to buy the right coverage.
If you want a cost-effective way to ensure your family has the funds they need, term life insurance might be a good option for you. PolicyScout can review your potential opportunities and provide quotes so you can compare policies. Contact us to learn more.
4 Main Types of Supplemental Life Insurance
1. Supplemental Employee Life Insurance This adds coverage on top of your pre-existing basic policy that you have through work.
2. Supplemental Spouse Life Insurance This covers the life of your spouse. Typically, this coverage will also take care of a domestic partner.
3. Supplemental Child Life Insurance The third type of supplemental life insurance covers eligible dependentsーthose who depend on your income. In this care, the eligible dependent would be your child/ren.
4. Supplemental Accidental Death & Dismemberment (AD&D) Insurance AD&D insurance pays out to the beneficiaries if you die or get seriously injured in an accident. This covers you in addition to your basic policy.
AD&D is a type of supplemental life insurance and not a replacement for term life insurance.
Note: Employers will often require you to buy a supplemental policy for yourself before your child or spouse can be eligible to get supplemental coverage.
What Are Your Other Primary Life Insurance Options?
There is more than one type of primary life insurance, each offering different types of coverage.
Here are three other types of primary life insurance that you could consider buying.
What Is Group Life Insurance?
Group life insurance, or ‘basic life insurance, is a plan typically purchased by an employer for the employees, but can also be bought through other professional associations and unions. It is a plan that enables employees to pool their finances, which has the effect of lowering monthly premiums.
Employers provide group coverage plans, which are term life insurance plans for a group of people. Term life insurance means that the plan only covers you for a specific period, and you must renew it at the end of the term to remain covered. Companies usually conduct an open enrollment when the term ends.
What Is Term Life Insurance?
Term life insurance is life cover that lasts for a specific period. For example, you can get term life insurance that will cover you for 10, 20, or 30 years. After the term or period ends, term life insurance will expire. If you do not pass away, the insurance policy simply expires at the end of the term.
The average life expectancy in the U.S. is 78.7 years. If you are considering a term life insurance policy, you should also keep in mind that many term policies expire before the insured person dies, so their beneficiaries receive no payout.
For this reason, term policies are best for people who don’t need coverage for life, but rather only enough to ensure beneficiaries can pay off any large debts and have some financial reserves if something unexpected happens.
What Is Permanent Life Insurance?
Permanent life coverage is a life insurance policy that does not expire and stays in place for your entire life.
These life insurance contracts will only end if the policyholder stops paying their premiums or cancels their policy.
Permanent life plans are usually more expensive than term life insurance plans. However, they can offer some benefits that term life insurance does not offer.
If you are younger and in good health, getting coverage is easier. However, if you are older or have a chronic condition, you may pay higher premiums for permanent life cover.
Why Consider Supplemental Life Insurance?
Insurance provided by your employer may allow coverage that is once or twice the amount of your salary. That may be protection for some, but you or other employees may need additional coverage.
For this reason, many employers allow you to purchase supplemental life insurance on a voluntary basis. Group life insurance policies have a number of advantages over supplement life insurance, such as cheaper premiums.
Supplemental insurance can work for you if:
Your group life insurance policy isn’t enough to support you and those who rely on your income.
You want additional coverage for specific costs. For example, burial fees.
You need a portable life insurance policy that covers you regardless of where you work.
Your basic life insurance doesn’t include a specific type of coverage that you need, such as supplemental life insurance for your spouse.
What Is a Portable Life Insurance Policy?
Portable life insurance is a policy that allows the policyholder to continue receiving coverage after your employer-provided coverage ends.
Your employer coverage can end when you decide to leave your job or your contract gets terminated.
Typically, portable life insurance is a term life insurance policy that can be bought without the need for a health exam or health history records. You will have to pay the premiums yourself.
Getting Supplemental Life Insurance through Work
Employer-provided coverage is typically free or at a low cost. As a result, it may not cover your every need, and this is where a supplemental life insurance policy comes in.
If your employer does offer supplement life insurance, you can buy it in addition to the basic group life insurance already provided.
In order to be eligible for supplemental life insurance, the employee typically has to be on a full-time contract and work a minimum number of hours.
The employer will also usually require the employee to have a valid basic life insurance policy through the company in order to get an additional supplemental plan.
Different Types of Supplemental Insurance through Your Employer
Almost all supplemental life insurance policies that are bought through work are group term life insurance policies, where coverage is dependent on your employment.
However, based on the policy's ‘portability,’ you may be able to separate your supplemental insurance policy from the group insurance to a personal policy that you can take with you if you leave the company.
What Does ‘Portability’ Mean?
Despite your basic life insurance through work being typically free, you could lose your policy coverage if you either lose or leave your job.
Buying your own supplemental life insurance plan, perhaps through a private insurer that allows you to take the policy with you, means that you can be covered even if you leave your job.
Is Coverage Guaranteed through Your Work?
Regardless of your age or medical history, you would typically qualify for basic life insurance coverage through work.
However, for supplemental life insurance employers can only guarantee acceptance of up to a set amount of coverage—for example, $100,000 or $1,000,000.
In order to get coverage higher than the set amount, you may be required to complete a medical exam or prove that you are not a risk to insure.
How Much Can I Buy?
How much financial strain would your death put on your loved ones? Is your current life insurance policy enough to cover those costs?
These are the two questions you should ask when considering buying a supplemental life insurance policy.
The more people you have relying on your income, the more life insurance you will need.
If you have a family, or plan on having one, it is important to take note of the extra costs that they may have to take on in your absence.
The amount of supplemental life insurance you’ll need will depend on the costs that you are responsible for.
Here are a few examples of things that may need future coverage:
You have a child and/or an aging parent. This will increase the number of dependents that need coverage. For example, if you have a child and they start high school or college, their fees will need to be covered
If you have purchased a house and now need additional coverage for mortgage payments.
You have recently married and want to ensure that your spouse can cover any unforeseen costs if you die.
Your spouse no longer has an income and you are the main breadwinner.
If you begin to make more money and your lifestyle begins to change, you may need additional coverage to match
How Do I Know If Supplemental Insurance Is Right for Me?
If you are looking for more guidance regarding supplemental insurance, or anything else related to life insurance, send your questions to Help@PolicyScout.com or call us on 1-888-912-2132 to get personalized assistance from one of our skilled Medicare consultants.
Key Considerations Before Committing to Supplemental Life Insurance
Where to Buy
There are positives and negatives to buying supplemental life insurance from your work. It can be convenient to sign through your employer, as they can pay your premiums directly from your paycheck.
If you have an underlying health condition, it may be a good option to take advantage of supplemental life insurance’s ease of acceptance compared to other insurance policies.
However, if you are young and healthy you may be able to find a cheaper policy on your own instead of supplemental life insurance.
If you have an existing coverage policy, you should review it properly before adding supplemental life insurance to your expenses.
Your current insurance policy may already cover everything that you want or need with no cost at all.
Your basic life insurance with your company is usually free, but you could lose that coverage if you lose or leave that job.
Getting your own supplemental life insurance policy, or a policy that you can still have if you left your job, means that you will be covered no matter which career path you choose.
Take Age and Health into Account
Traditional or primary life insurance typically has certain requirements in order to qualify—for example, a medical exam or an evaluation of your medical and health history.
Supplemental insurance can be a good alternative for people who may have found it difficult to get coverage.
If you are older, in poor health, or are involved in high-risk activities, it may be difficult to find traditional life insurance coverage.
If you are young, healthy, and low-risk, you will be able to get better life insurance rates for coverage.
For supplement life insurance or any other type of life insurance, make sure that your fees reflect your age and health.
Always make sure that you compare the various options, prices, and types of coverage that insurance providers include in their policies. To make comparisons easier, take a look at PolicyScout’s comparative page to find which provider and life insurance policy will best suit you.
Where Can I Find Out More about Supplementary Life Insurance?
If you’re interested in learning about supplementary life insurance and primary life insurance coverage for yourself, your parents, or your children, be sure to check out our life insurance hub.
Our PolicyScout life insurance consultants can also answer questions about coverage, costs, insurance terminology, and more.