What is supplemental life insurance?

You’ve just started working with a new employer. You’re signing the paperwork, opting in and out of programs, and getting buried in learning the ropes of your position.

Among the deluge comes your company’s life insurance package, often referred to as group life insurance. You look it over, and encounter something you’ve never seen before: the option of supplemental life insurance. 

You may have thought that all life insurance policies are created the same, or that a policy from your employer should provide enough coverage for you and your family - sadly you would be mistaken.  Most often the coverage offered by your employer as a part of your benefits may not be enough to fully protect you and your family.

Let's dig a bit deeper into why you should consider opting into supplemental employee life insurance coverage.

How does supplemental life insurance work?

Your employer provided group policy would provide you with a death benefit (i.e. the amount paid to your beneficiaries if you die) that generally only pays out at one to two times your annual salary. However, the recommend amount of life insurance coverage should be about 10 times a person's annual income. This is where supplemental life insurance comes into play.

Supplemental life insurance coverage adds to your company provided term life insurance policy (i.e. your group life insurance policy). If your employer pays for a base life insurance policy, supplementary life insurance is offered at an additional premium deducted from your pay. It covers you for a larger payout amount, or offers coverage for specific costs, like funeral expenses. These policies offer an extra layer of protection and peace of mind for you and your family.

Keep in mind that if you choose to purchase supplemental life insurance coverage through your employer, your choices can be limited and depend on what your employer is offering, including a limit on how much coverage you can buy, the type of coverage available, and even whether or not a medical exam is required. Most of all, prices and policies vary for each employer and organization, so don't make any assumptions and do your research.

Is supplemental life insurance different to term life Insurance?

Yes and no. Supplemental life insurance is added to an existing term life policy. One can’t exist without the other. The product has been referred to as employee supplemental term life insurance.

Term life insurance can cover any number of things, depending on the policy you have. It can simply increase your coverage amount – your employer’s standard policy might cover two times your salary, and your supplemental insurance covers you for eight times - equating to that magic number 10.

Alternatively, supplemental life insurance can cover you for specific costs. Funeral insurance coverage, accidental death & dismemberment, and spouse or domestic partner coverage (i.e. a form of joint life insurance) are all common. Either way, supplemental life insurance provides an additional cushion for your dependents upon your passing.

If you don’t currently have term life insurance, or want to see how your policy measures up compared to others out there, take the time to compare life insurance quotes and see what options are available.

Is supplemental life insurance worth it?

Whether or not you need supplemental life insurance is very much dependent on your circumstances and preferences.

If you’re young, single, healthy, and have no dependents, your employer’s policy is probably enough, and supplemental life insurance isn’t worth it. Alternatively, if you want additional coverage and you're young, a personal life insurance policy is most likely better value.

If you’re married with a family and are getting older or are generally more worried about your health, supplemental life insurance could be worth it. Your employer may get a group rate, meaning supplemental life insurance rates could be lower than comparable private life insurance options. Either way, there is no harm shopping around and getting quotes for both supplemental coverage through your employer and personal life insurance options.

Another benefit of supplemental life insurance is that, like all employer provided insurance policies, no medical exam is required. In this way, supplemental insurance is a kind of like guaranteed life insurance, which is a good option if you’re worried about your insurability.

Remember, before opting in to supplemental life insurance, run the numbers and compare against private options - is it cheaper to go elsewhere. Or, after taking a closer look at your employer’s default policy, maybe it offers enough coverage for your dependents and you can forego the additional coverage. At the end of the day, if you worry your current coverage won’t be enough, consider opting into the supplemental life insurance.

Portability of supplementary life insurance 

An important point to consider about any employer-based insurance is portability. This refers to whether you can continue your policy if you change employers. Generally, most employer paid policies are not portable, as they’re based on group rates.

Many private term or whole life insurance policies offer more value when they’re held long term, so you may be better off purchasing life insurance privately if you expect to change employers in the short or medium term.

How much does supplemental life insurance cost?

As with all life insurance, supplemental life insurance rates depend on factors like your age and health condition. That said, supplemental life insurance provided through your employer is often inexpensive, and has the added benefit of being able to be deducted directly from your paycheque.

Because group life insurance policies are often cheaper, if the supplemental life insurance is covered by such a plan, then you could get the extra coverage you need at a great rate. If, however, the supplemental policy is on an individual basis, it could be cheaper to shop around with private providers for such coverage. This is why you always need to comparison shop before purchasing.

The bottom line

So is supplemental life insurance worth it? It really depends on the person. Supplemental life insurance can be an affordable, effective way to have the additional peace of mind, should anything happen to you. It can be a great assurance to have things such as funeral expenses covered for your family, or can provide the additional cushion they require in the event of your passing. And with no medical exam required, it's easy to get.

Though coverage maybe cheap and easy, you give up control on both the amount, type and potential portability of the policy, so really it comes down to your situational analysis. To determine if supplemental life insurance is right for you, take a look at your existing coverage, consider both you and your family’s needs and shop the market. If you find you could benefit from additional coverage and your company’s supplemental life insurance coverage is suffice, it could be a match made in heaven.

Also read:

• What is a participating life insurance policy?
• Mortgage insurance vs life insurance
• Life insurance for married couples
• Why you need to read you life insurance fine print