What Is Supplemental Life Insurance?

If your employer offers life insurance as part of your employee benefits package, you may think you’re covered. But the amount of life insurance that your employer provides could be insufficient to cover your family’s needs if something were to happen to you. In that case, you may want to consider supplemental life insurance, either through your employer’s plan or purchased directly from another insurance company. 

Do You Have Enough Life Insurance?

Many people get a certain amount of group term life insurance through their employers, often free of charge. Typically, that coverage is based on your salary. For example, many employers offer life insurance that is equal to one or two times your annual earnings. While that amount will certainly cover your burial expenses, it likely won’t support your family for very long.

In fact, according to the American Council of Life Insurers, experts often suggest that policyholders have life insurance equal to seven to 10 times their annual income.

If your employer-provided insurance falls short of that, then you may want to purchase supplemental life insurance to fill the gap. 

How Supplemental Life Insurance Works

In addition to the basic insurance coverage you receive at work, your employer may offer you the option to purchase additional coverage at your own expense. If you belong to a union or other membership organization, then you may also have group insurance benefits and the opportunity to increase them if you wish.

This supplemental insurance may not require a medical exam, as most individual policies would. If you’re buying it through your employer, you may also be able to pay for it with convenient payroll deductions. 

If Your Employer Doesn’t Offer Supplemental Life Insurance 

Not all employers offer the option to purchase supplemental life insurance, however. Also, depending on your age and other factors, the supplemental coverage that you could get through work might be more expensive than an individual life insurance policy that you could buy on your own.

So if you need additional coverage, it’s worth finding out what your employer’s plan would charge you for it and then shopping around.

There are two main types of individual policies to consider: term life and permanent life. 

Term Life

With term life insurance, you get coverage for a defined period of time, such as 10, 20, or 30 years. If you die during the policy’s term, then your beneficiaries will receive the death benefit. But if you die after the policy’s term, then they receive nothing.

Your employer-provided coverage at work is most likely term insurance. However, unlike your employer’s insurance, which ends if you leave your job, a term policy that you purchase on your own is portable.

Because term life insurance simply provides a death benefit and doesn’t build up any cash value, it’s typically less expensive than permanent life insurance—often much less. 

Permanent Life

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

Permanent life insurance plans can also accumulate cash value. Over time, you can tap into the cash value to pay your premiums, take out a loan, or buy more coverage. Permanent life insurance comes in several different forms, including whole life, universal life, and variable life.

The Bottom Line

Life insurance should be a part of your family’s financial plan. If you’re shopping for a policy on your own, it’s a good idea to compare rates and terms from several different insurance companies. If you’re not sure where to start, check out Investopedia’s list of the best life insurance companies.