What is supplemental life insurance?

These policies can add extra coverage to existing ones, usually at a discount through your employer

Author pictureAuthor picture
Author picture
Written by
Author picture
Edited by
large green shade tree in a grassy area

Supplemental life insurance is a secondary policy that can augment the coverage you get through a workplace group life insurance plan. Sometimes called voluntary life insurance, supplemental life policies typically are offered at a discounted rate through your employer as an extra-cost benefit but can also be purchased directly from an insurance company or agent.

Supplemental coverage can vary widely. You may be able to purchase coverage equal to a multiple of your current salary. Or, you may be limited to a modest accidental death and dismemberment (AD&D) or final expense policy that has a payout of only a few thousand dollars.


Key insights

Supplemental life insurance typically is offered through your workplace as an extra-cost benefit.

Jump to insight

Policies purchased through work may not be portable, meaning coverage ends if you leave your job.

Jump to insight

You may be able to purchase coverage not just for yourself but for your spouse and children as well.

Jump to insight

How does supplemental life insurance work?

Supplemental life insurance may be offered at a discounted group rate through your employer. Generally, you must have opted to participate in your company’s group life insurance plan in order to purchase an additional supplemental policy, with premiums deducted from your paycheck. Unlike insurance purchased privately, in most cases, supplemental life insurance policies do not require medical exams in order to receive coverage.

“Consider it as filling in the gaps. This is where it frequently makes sense,” said Samuel Greenes, a registered insurance agent and the CEO of Blue Insurance in Farmingdale, New Jersey. “While many employers provide basic life insurance, the amount offered may be insufficient for your family needs. Supplements improve it.”

Costs will vary, depending on the type of supplemental plan you purchase — for example, a term life plan versus funeral insurance — as will coverage amounts. You may be able to purchase a term life insurance policy with up to $1 million or more in coverage, plus coverage for your spouse and child. Or, you may only be offered a burial insurance policy with $10,000 in coverage.

You can change your insurance options during your employer’s annual benefits enrollment period. It’s worth noting that if you purchase coverage through your employer, the policy may not be “portable,” meaning you won’t be able to continue coverage if you leave your current job. But while you are employed and your policy is active, it will provide benefits should you or another insured family member pass away unexpectedly.

» MORE: How does life insurance work?

Types of supplemental life insurance

Whether you purchase coverage through your employer or directly from an insurer, there are several types of supplemental policies available, namely:

  • Term life insurance for yourself has coverage of up to $500,000.
  • Accidental death and dismemberment (AD&D) coverage provides a financial benefit should you be killed or severely disabled in an accident.
  • Final expense insurance, sometimes called burial insurance, provides a modest death benefit (perhaps as low as $10,000) to pay for end-of-life expenses.
  • Spousal life insurance pays a death benefit if your spouse or domestic partner should die unexpectedly due to a covered incident.
  • Child life insurance pays a death benefit should a child, stepchild or other qualified dependant die unexpectedly.

» MORE: 7 types of life insurance

How much supplemental life insurance should you buy?

Everyone’s life insurance needs are different, said Greenes. “For someone young, single, and debt-free, supplemental insurance may be sufficient to meet their current needs. However, for most people, it is only a piece of the jigsaw,” he said.

If you’re considering buying a supplemental life insurance policy, here are some questions to ask when deciding how much coverage to buy:

  • Are you the primary means of financial support for your spouse and or family, and would the loss of your income create hardship should you die unexpectedly?
  • Do you have outstanding debts, such as a mortgage or credit card debt, that would be a financial burden for your survivors?
  • Do others depend upon you for support now or in the future, such as children or other family members with a disability or long-term health issues?
  • Do you have planned future expenses, such as a child’s college education, to account for?

If you have responsibilities such as these, Greenes said, you may benefit from having both a term or whole life insurance policy to serve as your financial foundation, plus additional coverage.

“A traditional policy is your primary coverage, based on a thorough assessment of how much it would cost to fully replace your income,“ he said. “Supplemental provides a layer to meet special needs, such as more debt or final expenses.”

Where to buy supplemental life insurance

The most common means of buying supplemental life insurance is through your employer as an extra-cost employee benefit. But if your workplace doesn’t offer this perk, or if the coverage they do offer is inadequate to your needs, you can also purchase coverage independently through an insurance company, agent or broker.

Buying supplemental life insurance through work

When you start a new job, you may be offered both group life and supplemental life insurance policies as part of your employer-provided benefits. The chief advantage to buying supplemental life insurance through work is that premiums typically are available at a discounted rate. The chief drawback is that coverage options are limited to what your employer chooses to offer and may not fit your specific needs.

Buying supplemental life insurance outside of work

The main advantage to buying supplemental life insurance on your own — either directly from a company or from an independent agent — is that you won’t be limited to just a single insurer or a couple of plans. You can shop for precisely the policy you need at an affordable price, and unlike work-offered supplemental life, you won’t risk losing coverage if you leave your job.

Pros and cons of supplemental life insurance

Supplemental life insurance may be an option worth considering if you only have a group life insurance policy through work that by itself doesn’t provide adequate coverage. Your workplace may offer supplemental coverage at a discounted rate, but even so you may find that the options available aren’t suitable to your needs and they will expire if or when you leave your current place of employment.

Pros

  • Employer-sponsored plans typically are offered at a discounted group rate.
  • Coverage for your family may be available.
  • Medical exams are not required in most cases.

Cons

  • Coverage often terminates when you leave your job.
  • You may only have a few supplemental insurance options to choose from.
  • Maximum coverage amounts may be relatively low.
LogoContact
Learn More
LogoContact
Learn More
LogoContact
Learn More

FAQ

What is the difference between supplemental life insurance and life insurance riders?

Supplemental life insurance is additional coverage you can buy to augment your primary life insurance policy. Typically, this type of insurance is marketed toward people who have group life insurance through their employer, but it can also be purchased from an insurance company. It may be offered in the form of term life insurance coverage for yourself, a spouse or a child. Or it may be an accidental death and dismemberment (AD&D) or burial insurance policy.

A life insurance rider is an optional policy add-on that can provide additional coverage under specific circumstances, such as being diagnosed with a terminal illness, being killed or grossly injured in an accident or if you are otherwise rendered unable to work. Other riders may allow you to convert a term policy to permanent, or provide coverage for a spouse or child.

What are the three main types of life insurance?

Term, whole and universal are the three principal types of life insurance.

  • Term life insurance is temporary. The death benefit is guaranteed, but only if the insured person dies while the policy term is active. After the term expires, coverage ceases, although some policies may be able to be converted to whole life insurance.
  • Whole life insurance is a type of permanent life insurance, with a savings component that grows cash value over time. The policyholder can withdraw the cash, but doing so will diminish the death benefit unless those funds are repaid.
  • Universal life insurance is another kind of permanent coverage with more flexibility. Premiums are adjustable. You can pay less over time if your finances change, but doing so may diminish the death benefit.
What is additional term life insurance?

Additional term insurance is a kind of supplemental life insurance that is commonly offered as part of an employee benefits package. Typically, workers have the option of purchasing a second term life insurance policy or accidental death and dismemberment (AD&D) coverage for themselves, their spouses and their children. Rates may be offered on a discounted basis, similar to group life insurance coverage, and can be paid through payroll deductions.

Is supplemental life insurance taxable?

Supplemental life insurance options vary, but generally speaking, they are not taxable. According to the IRS, beneficiaries are not obligated to report a lump-sum death benefit payment as income. If your supplemental life insurance policy contains cash value, you may be able to access it through loans or withdrawals, which may be subject to taxation.

Bottom line

A supplemental life insurance policy could make sense if you receive group life insurance through work but find the coverage inadequate for your needs. Many employers offer supplemental life insurance as part of their employee benefits package as an extra-cost option, but the types of policies available vary.

Unless your work-issued policy is considered portable, you’ll lose coverage if you leave that place of employment. If you do not find suitable insurance through your work, or if you don’t want coverage tied to your employment status, you can also buy supplemental life insurance through the private market.


Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Progressive, “What Is Supplemental Life Insurance?” Accessed March 27, 2024.
  2. Fidelity Life, “What is Supplemental Life Insurance?” Accessed March 27, 2024.
  3. USAA, “Employee Supplemental Life Versus Term Life: Which Is Right For You?” Accessed March 27, 2024.
  4. Haven Life, “What Is Supplemental Life Insurance, And Should You Buy It Through Work?”  Accessed March 27, 2024.
  5. Progressive, “What Is A Life Insurance Rider?” Accessed March 27, 2024.
  6. USAA, “Understanding Life Insurance Riders, Benefits And Options.” Accessed March 27, 2024.
  7. IRS.gov, “Are The Life Insurance Proceeds I Received Taxable?” Accessed March 27, 2024.
  8. Insurance Information Institute, “How Is Life Insurance Sold?” Accessed March 28, 2024.
  9. SoFi.com, “What Is Supplemental Life Insurance?” Accessed April 8, 2024.
  10. Insurance Information Institute, “What Are The Principal Types Of Life Insurance?” Accessed April 8, 2024.
  11. Guardian, “What Is Life Insurance, And How Does It Work?” Accessed April 8, 2024.
  12. Prudential, “What Is Convertible Term Life Insurance?” Accessed April 8, 2024.
  13. Insurance Information Institute, “Should I Buy Life Insurance?”  Accessed April 8, 2024.
Did you find this article helpful? |
Share this article