Supplemental life insurance provides additional coverage that can enhance a person’s basic life insurance policy, typically offered by employers. This form of insurance is designed to supplement group life insurance or individual policies, often through trade associations or similar organizations.
According to Alex Henry, North American Group Benefits leader for WTW, supplemental life insurance is commonly structured as term life insurance. Coverage amounts generally range from four to eight times an employee’s annual salary, with a maximum limit typically between $1 million and $3 million. The Employee Benefits Research Institute (EBRI) reported that nearly two-thirds of employers participating in their 2024 Financial Wellbeing Employer Survey offer some form of life insurance, although only one-third provide supplemental life insurance options.
Employees usually enroll in supplemental life insurance when they are hired or during designated open enrollment periods for employee benefits. Maintaining this coverage is generally possible for as long as the individual remains with the employer, with premiums often deducted directly from paychecks. Most employees do not need to answer medical questions to qualify for this insurance unless they seek coverage above the employer’s basic offering.
When considering how much supplemental life insurance to purchase, individuals are advised to assess their overall life insurance needs and determine if supplemental coverage is necessary to fill any gaps. Supplemental life insurance may be particularly beneficial for those with health issues, as it often represents a cost-effective means to obtain life insurance. Nevertheless, it is essential to understand the implications of maintaining this coverage after leaving a job, as it may become more expensive over time.
When leaving an employer, individuals usually have three options regarding their supplemental life insurance coverage:
- Let the coverage end upon departure.
- Continue term life insurance coverage through a portability option, if available. However, premiums can rise significantly, potentially two to three times higher than the current rate for the same level of coverage, according to Henry.
- Convert the group life insurance into a permanent policy, although this may also result in increased premiums. This option may offer lifelong coverage and the potential to build cash value.
Individuals should evaluate these options carefully, particularly the costs associated with purchasing a private policy versus maintaining supplemental coverage from their former employer.
