What is a supplemental life insurance policy?

Supplemental life insurance increases your existing life insurance coverage. You may already have insurance but want more to provide for your family if something happens to you. For instance, if you have $50,000 of life insurance as a benefit from work, you might be able to purchase supplemental life insurance to increase that to $500,000. 

"Life insurance policies are valued policies, which means that policyholders can choose to buy any amount of life insurance they want," says Stephen Yao, assistant professor of Insurance and Risk Management at the University of Central Arkansas' College of Business.

"Basically, there is no big difference between supplemental life and 'regular' life insurance.

The only difference is that policyholders usually get the supplemental life from their current employer-sponsored group life insurance plan as an extra life insurance coverage at the group rate in addition to what their employer already offered," Yao says.

Supplemental life insurance policies can also be purchased to cover your spouse and children in some instances.

You may also hear supplemental life insurance referred to as voluntary life.

The supplemental life offered through work generally does not require a medical exam (medical underwriting) until you reach very high dollar amounts. This is a good option for people who have medical conditions and have found it difficult to get insurance elsewhere.

Sometimes the plan you're offered at work is not just for life insurance but includes other benefits such as accidental death and dismemberment (AD&D), burial insurance or other forms of coverage. Always check with human resources or the administrator of the plan so you know exactly what coverage you're buying, especially if this is the only life insurance you have.

It’s important to know that you can't always keep supplemental life insurance when you leave your job.

Do you need supplemental life insurance?

You may need supplemental life insurance for a number of reasons. If you have basic life insurance through your work, they may only offer one or two times your annual salary as a benefit. You might want to provide more than that for your family if you die, and you can do this by purchasing supplemental life insurance. 

"There are several ways to determine your life insurance demand," Yao says.

"The first is the multiple income method. Multiplying your current gross income before taxes by 20 or 15 gives you some general idea of how much you need for life insurance.

The second is a needs-based approach. You need to add together all your financial obligations such as your children’s college education expenses, your outstanding mortgage loans, auto loans, student loans, and your monthly living expenses etc. for the future. The total number is your life insurance demand.”

A life insurance calculator can help you with the math.

“The third [method] is an adjustment to the second method, also called [the] capital retention method. Using the needs-based number to subtract any investments/assets you currently own, which leads to a smaller number. Or you can simply take a guess such as $250,000," Yao says

Another reason you might need supplemental life insurance is it can sometimes be easier to get than a policy through a private insurance company. Depending on the dollar amount, many group-sponsored supplemental life policies at work don't require a medical exam. If you have medical issues that would otherwise disqualify you from private life insurance coverage, this could be a good option. Keep in mind that very high death benefit payouts may require medical exams.

How do you buy supplemental life insurance?

"First, you need to be covered by a group insurance plan such as [an] employer-sponsored group life insurance plan. Then you contact the same insurers to buy extra coverage based on the group rate," Yao says.

Your HR department will often be the first point of contact in providing the necessary paperwork. Other times a consultant from the insurance company might visit your office to explain everything and sign people up.

Employers usually make paying for these policies easy by setting up payroll deductions.

One important thing to consider is that life insurance purchased through your employer may not go with you if you leave your job. An individual policy you purchase on your own will follow you anywhere.

Check with your employer to see if your policy is only good while you are an employee or if it can be “ported” or taken with you.

How much is supplemental life insurance?

Supplemental life insurance costs vary, but Professor Yao says generally a group rate is much lower than a private insurance policy. The options might not be as varied, but that keeps costs down. Sometimes exceeding a certain dollar amount, however, carries a higher premium and also requires a medical exam, so keep that in mind.

Private insurance policies can be cost-effective because they have more options for you to choose from and you can shop around. They often require a medical exam depending on your age, however, and if you have certain health issues, costs increase. Age is a factor as well.

You can weigh the pros and cons of your needs versus cost, and whether or not you want to avoid a medical exam and decide if group coverage or a private policy is better for you.

What are the alternatives to supplemental life insurance?

Purchasing an individual life insurance policy from a private insurer is one way to plan for your family’s financial security in case of your death and loss of income. There are individual term, whole life, and universal life insurance policies. You can consult an insurance broker to help decide what’s best for you and your family.

Many people, however, only have the life insurance their employer provides– the one or two times their annual salary that is given as a benefit. That’s why supplemental life is a good option for many people.

If you are looking for options beyond insurance, it’s a good idea to consult a financial or estate planner.

Life insurance FAQs

How much life insurance do I need to get supplemental life insurance?

There’s no minimum underlying amount of life insurance required to buy supplemental life. Usually, the amount you already have is whatever your employer provides.

What’s the difference between supplemental life insurance and an insurance rider?

Supplemental life insurance is additional coverage, increasing the dollar amount paid out in the event of your death. A rider is an added benefit that can be added to your life insurance to cover specific situations such as long-term care, accidental death, etc.

"There are a lot of insurance riders available to choose from. Those riders are not free," says Yao. "An insurance rider related to the supplemental life is the guaranteed insurability rider which allows you to increase the size of your death benefit at specific life milestones."

Can you convert or port supplemental life insurance?

Not all supplemental life insurance purchased at work can be ported (taken with you) if you leave that job. Some supplemental life can be converted to a whole life policy that stays with you for life. Be sure to ask HR or the plan administrator up front.