What Is Supplemental Life Insurance?

You may believe you are covered if your employer provides life insurance as part of your employee benefits package. However, the amount of life insurance provided by your employer may be insufficient to cover your family's needs if something were to happen to you. In that case, you might want to think about purchasing supplemental life insurance, either through your employer's plan or directly from another insurance company.

Do You Have Enough Life Insurance?

Many people receive a certain amount of group term life insurance from their employers, often at no cost. That coverage is usually determined by your salary. Many employers, for example, provide life insurance coverage equal to one or two times your annual salary. While that sum will undoubtedly cover your burial expenses, it is unlikely to sustain your family for long.

According to the American Council of Life Insurers, experts frequently recommend that policyholders have life insurance coverage equal to seven to ten times their annual income.

If your employer-provided insurance falls short, you may want to consider purchasing supplemental life insurance to bridge the gap.

How Supplemental Life Insurance Works

In addition to the basic insurance coverage provided by your employer, you may be able to purchase additional coverage at your own expense. If you are a member of a union or another membership organization, you may have group insurance benefits and the option to increase them if you so desire.

As opposed to most individual policies, this supplemental insurance may not require a medical exam. If you purchase it through your employer, you may be able to pay for it with simple payroll deductions.

If Your Employer Doesn’t Offer Supplemental Life Insurance 

However, not all employers provide the option to purchase supplemental life insurance. Furthermore, depending on your age and other factors, the supplemental coverage provided by your employer may be more expensive than an individual life insurance policy purchased on your own.

So, if you require additional coverage, find out how much your employer's plan would charge you for it and then shop around.

Individual policies are classified into two types: term life and permanent life.

Term Life Insurance

Term life insurance provides coverage for a set number of years, such as 10, 20, or 30. If you die while the policy is still in effect, your beneficiaries will receive the death benefit. However, if you die before the policy's expiration date, they will receive nothing.

Most likely, the coverage provided by your employer at work is term insurance. However, unlike your employer's insurance, which terminates when you leave, a term policy purchased on your own is portable.

Because term life insurance only provides a death benefit and has no cash value, it is typically less expensive than permanent life insurance—often significantly less.

Permanent Life Insurance

Permanent life insurance can provide coverage for the rest of your life. You are covered as long as you pay your premiums, and your family will receive a death benefit if you die.

Permanent life insurance policies can also build up cash value. You can use the cash value to pay your premiums, take out a loan, or buy more coverage over time. Permanent life insurance is available in a variety of forms, including whole life, universal life, and variable life.

The Bottom Line

Your family's financial plan should include life insurance. When shopping for a policy on your own, compare rates and terms from several different insurance companies.