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What Is Supplemental Life Insurance?

what is supplemental life insurance

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Updated October 30, 2023

Supplemental life insurance boosts coverage amounts or fills coverage gaps in the group life insurance plans offered by many employers. You may be able to buy supplemental life insurance through your employer.  

Or you can choose to buy it directly from an insurance company. Another option is an online broker such as Everyday Life, which offers term and whole life insurance policies from multiple companies. In about 15 minutes you'll get a policy recommendation that's right for your family and budget. You can even begin the application process immediately.

How does supplemental life insurance work?

According to the U.S. Bureau of Labor Statistics, group life insurance is available to 57% of private industry workers as an employee benefit, often at reduced or no cost to the employee. It’s a nice perk for many American workers. 

However, the basic group life insurance offered as an employee benefit usually falls far short of the coverage needed to provide financial security to a family. For example, group life insurance death benefits are typically equivalent to only a year or two of salary. These policies usually provide coverage for the employee but not their spouse. This is where supplemental life insurance comes in. 

Supplemental life insurance is not a specific type of policy. Instead, it’s any insurance purchased to supplement an employer’s group life insurance offering. Its purpose is to add certain benefits not included with the group life policy or increase that policy’s coverage amount. You typically buy it through your employer, but you can also purchase it on the open market. 

Types of supplemental life insurance

There are multiple types of policies that you can buy to provide supplemental life insurance.

Permanent life insurance policies

A permanent life insurance policy is intended to stay in force for the rest of your life. When you buy a permanent life insurance policy, you choose a death benefit amount and designate beneficiaries. Your beneficiaries will receive the death benefit upon your passing. The higher your death benefit, the more you can expect to pay for the policy.

Permanent life insurance policies also include a cash-value feature. Cash value is a savings component that earns interest throughout the policy’s life. You can access this money either by taking out a loan against the policy or through a withdrawal. In this way a permanent life insurance policy provides some benefit to you while living.

The permanent life insurance category can be broken down into subtypes, including whole life, universal life, indexed universal life, and variable universal life. Each policy type uses a different method to grow the cash value.  

Term life insurance policies

A term life insurance policy is intended to stay in force only for a set number of years, typically 10, 20, or 30. You choose the term when you buy the policy, with a longer term costing more than a shorter term. You also choose the amount of your death benefit and designate beneficiaries. If the term hasn’t expired, your beneficiaries will receive the death benefit upon your passing.

Term life does not include a cash-value feature. Because of this—and because it has a definite term length—term life typically costs much less than permanent life insurance. It’s also considered a much simpler type of insurance to understand and own. 

Group life insurance coverage riders 

Your employer may also offer optional riders and supplements that can help boost the coverage available with your group policy. These may include higher death benefit amounts, extension of coverage to a spouse or children, accidental death and dismemberment coverage, or other benefits.

How to decide if you need supplemental life insurance

Coverage through a group life insurance policy can be a nice workplace perk, but you may find it isn’t enough insurance for your and your family’s needs. This is when you should consider buying supplemental life insurance. 

You need a higher death benefit

Group life insurance death benefits are typically limited to perhaps one to two times the amount of your annual salary. If you have a family to support, children to put through college, and significant debts such as a mortgage, you’ll likely want a policy with a much higher death benefit.  

You want to cover your spouse or partner

Group life insurance typically covers only the employee. Buying additional coverage might let you also cover a spouse, partner, or your children. 

You want additional coverages

Typical group plans provide only life insurance. Adding coverages such as accidental death and dismemberment can broaden your protection.

You want portable coverage

Group life insurance is rarely portable, meaning that you no longer have coverage if you leave (or lose) your job. 

So if portability is important, you’ll want to buy supplemental coverage. Some supplemental policies offered by employers are transferable—check to see if yours is. If it’s not, then you’ll need to buy coverage on the open market. 

How much supplemental life insurance do you need?

There are a few ways to determine your total life insurance need. Perhaps the simplest is the 10X formula.

  • Multiply your income by 10.
  • Add at least $100,000 per child to cover the cost of college. 

Under this formula, if you earn $100,000 and have two children, you’ll need $1.2 million in life insurance coverage.

Some simple math can then show the size of your coverage gap. Based on our example, if you have only $200,000 worth of group life insurance coverage, you’ll need $1 million worth of supplemental insurance.  

Key factors to consider when shopping for supplemental life insurance

If you've decided to supplement your employer's group life insurance coverage and are wondering what your next step should be, ask yourself a few questions. 

Does the supplemental life insurance offered by your employer meet your coverage needs?

Get an overview of your employer's supplemental life insurance offering and ensure that it meets all your needs for the amount of coverage, who can be covered, and available types of coverage.

How much does your employer’s supplemental life insurance cost?

While your company's group life insurance may be offered at no cost, you'll have to pay for supplemental insurance. Make sure you understand what it costs. 

Would you be better served by buying a policy on the open market?

Check a few life insurance companies to see if their policy offerings might be a better fit. You might even find a policy that costs less than supplemental coverage purchased through your employer.

Everyday Life makes shopping for life insurance easy. As an online broker, it offers policy options from multiple life insurance companies and an easy-to-use tool for you to evaluate those options. Just key in some information about yourself and receive a personalized recommendation in minutes.  

How much does supplemental life insurance cost?

The cost of life insurance varies depending on the policy type, the coverage amount, and factors such as your health and age. The cost also varies by insurance company. 

According to a recent study by U.S. News and World Report, the average monthly cost of a policy with a $1 million death benefit for a nonsmoking 40-year-old with average health is as follows:

Policy typeGenderCost
Thirty-year term
Whole life

Supplemental coverage purchased through your employer plan may not match these figures; it’s worth checking. 

TIME Stamp: Supplemental life insurance fills in gaps in your employer’s group insurance

Employer-provided group life insurance is a useful employee benefit for many Americans, but this coverage is typically insufficient for the needs of many families. That’s where supplemental life insurance comes in. Supplemental life insurance boosts coverage levels and fills gaps in your employer’s group life insurance.

Frequently asked questions (FAQs)

What is supplemental employee life insurance?

Supplemental life insurance boosts coverage and fills coverage gaps that may be present with your employer's group life insurance plan.

What is supplemental spouse life insurance?

Supplemental spouse life insurance extends your group life insurance coverage to your spouse or domestic partner. These individuals are typically not covered under a standard employer-provided group life insurance plan.

Can you borrow from supplemental life insurance?

If the life insurance policy has a cash-value component, such as a whole life policy, you may be able to take out a loan against the policy.

Can you buy supplemental life insurance from an insurance company?

While supplemental life insurance is often offered by an employer, it’s also something you can buy directly from an insurance company. This might be a good idea if the employer-provided coverage does not meet your needs. Another reason to buy it from an outside source is if you find out that the supplemental coverage is not portable should you leave your employer.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.