Supplemental life insurance, also known as employee-paid or voluntary life insurance, is typically purchased through your employer. Private insurers can also provide policies.

Supplemental life insurance can be a valuable addition, especially if your health conditions make it difficult to obtain adequate coverage elsewhere. However, make sure to compare policies and prices. In some cases, the benefits may be insufficient to offset the costs.

Why buy supplemental life insurance?

It's natural to wonder why you'd want to pay for more coverage if you have free life insurance through your employer, as many people do. Here are a few scenarios in which supplemental life insurance may be useful:

Your basic life insurance policy is insufficient to support those who rely on your income.

You require additional coverage for specific costs, such as burial expenses.

You need a portable life insurance policy that will cover you no matter where you work.

You need a specific type of coverage not included in your basic plan, such as supplemental life insurance for your spouse.

How much supplemental life insurance should you buy?

Begin by asking yourself two questions to determine how much life insurance you require:

• What financial burden would your death impose on others?
• Is your current life insurance policy sufficient to cover those expenses?

According to industry experts, your life insurance coverage should range from 5 to 20 times your annual income, depending on your circumstances. However, no simple rule of thumb is likely to apply to your specific situation.

The amount of supplemental life insurance you require, if any, is determined by the costs for which you are responsible. Here are a few scenarios that may necessitate additional coverage.

• You have a child or are caring for an ageing parent, which increases the number of people who rely on your income.
• You purchase a home and require additional coverage to cover future mortgage payments.
• You get married and want to protect your spouse from any unexpected costs if you die.
• Your spouse is no longer working, leaving you as the family's sole source of income.
• Your income rises, and you require more coverage to match your new way of life.
• Your child has begun college, and you require coverage for future expenses.

Buying supplemental life insurance through work

If your employer provides supplemental life insurance, you can purchase it in addition to the basic coverage provided by your employer.

Basic life insurance policies are free and cover one or two times your annual salary. The premiums are paid for by your employer.

Supplemental life insurance policies have higher coverage limits, but you are usually responsible for paying the premiums.

Supplemental life insurance policies are typically available only to full-time employees or those who work a certain number of hours per week. To be eligible for supplemental coverage, most companies require you to have a valid basic life insurance policy.

Types of supplemental life insurance through work

Most supplemental life insurance policies provided by your employer are group term life insurance, and coverage is contingent on your continued employment. However, depending on how "portable" the policy is, you may be able to convert your group life insurance to a personal policy and take it with you when you leave.

The four main types of supplemental life insurance provided by employers are as follows:

1. Supplemental employee life insurance adds coverage to your own policy.
2. Supplemental spouse life insurance protects your spouse in the event of his or her death. In many cases, a domestic partner will be covered under this type of policy.
3. Supplemental child life insurance provides coverage for eligible dependents.
4. In addition to your primary policy, supplemental accidental death and dismemberment insurance protects you. If you die or are seriously injured in an accident, AD&D insurance will pay out.

Employers frequently require you to purchase supplemental life insurance for yourself before you are eligible for supplemental spouse or child life insurance.

How much coverage can I get through work?

Supplemental employee life insurance policies provide more coverage than basic plans, up to a predetermined limit set by the company. Maximums typically range between $250,000 and $500,000, but can exceed several million dollars. Managers or high-level executives may have greater access to funds than rank-and-file employees in some cases.

Limits are generally lower for a spouse or child. A child's maximum may range from $10,000 to $40,000, and a spouse's maximum may range from $45,000 to $500,000.

Unlike many private term or whole life insurance policies, supplemental life insurance through your employer may allow you to increase or decrease coverage amounts at specific times, such as an open enrollment window.

Be aware that if you have supplemental life insurance through your employer, your death benefit may automatically decrease once you reach a certain age, such as 70 or 75. If this happens, you only pay a portion of the premiums to match the lower death benefit.

Is coverage guaranteed?

Regardless of your age or medical history, you are usually eligible for basic life insurance policies through your employer. Companies, on the other hand, guarantee acceptance only up to a certain coverage amount, such as $100,000 or $1 million, for supplemental life insurance.

To purchase more than that amount, you may be required to complete a medical exam or demonstrate that you are not a risk to insure. Your company may only provide guaranteed coverage during open enrollment periods.

Buying supplemental life insurance from private insurers

The open market provides a wider range of supplemental life insurance products than workplace plans.

Here are a few examples of supplemental insurance policies available on the open market:

• Term or permanent life insurance that supplements your employer's basic policy.
• Child life insurance protects children who are financially dependent on their parents.
• Funeral or burial expenses are covered by final expense life insurance.
• Disability insurance, both short- and long-term.
• AD&D insurance is not linked to your job.

In general, supplemental term and permanent life insurance policies purchased on the open market provide greater coverage than employer-sponsored plans. However, your age and health may limit the amount of coverage you can obtain.

How much does supplemental life insurance cost?

Supplemental life insurance through your employer may be more expensive than policies purchased on the open market, but this is dependent on where you work.

This is due, in part, to the method by which insurers calculate group life prices. Data about the group as a whole, such as the number of employees and their average age, are taken into account by insurance companies. Because this information is unique to each company, premiums can vary greatly. For example, a 40-year-old employee at Company X may be able to purchase a $500,000 supplemental life insurance policy for $600 per year, but only $250,000 of coverage at Company Y for the same price.

The cost is also affected by your age. In general, rates for supplemental life insurance policies through work are not fixed, so premiums can rise with age. A $500,000 supplemental life insurance policy for an employee under the age of 30 at Company A, for example, costs $168 per year, whereas the same policy for an employee over the age of 70 can cost up to $6,000 per year.

When you buy term life insurance on the open market, your premiums are usually locked in for the life of the policy, regardless of any health issues you develop along the way. As a result, if you are younger, you may be better off purchasing life insurance through a private insurer and taking advantage of lower, fixed rates.

The cost of supplemental products on the open market is determined by factors such as your age, medical history, insurer, and coverage type. Term life insurance is generally less expensive than whole (or permanent) life insurance.

InsuredCircle can assist you in comparing life insurance quotes.

Key factors to consider before buying supplemental life insurance

According to a 2018 study by the Society for Human Resource Management, eighty percent of companies in America provide supplemental life insurance to their employees. However, just because you have the option to purchase it does not always imply that you should.

Where to buy: There are advantages and disadvantages to purchasing supplemental life insurance through your employer. The convenience of signing up through work and deducting premiums from your paycheck may be something you value. If you have an underlying health condition, it may be worthwhile to take advantage of work-provided supplemental coverage. On the other hand, if you're young and healthy, you might be able to use your energy to negotiate a lower-cost policy on your own.

Alternatives: In addition to the standard term insurance policies, some employers provide supplemental whole life insurance policies. However, your age and health may preclude you from being eligible. If you want more comprehensive coverage, consider laddering your life insurance policies — purchasing multiple term life policies of varying lengths — rather than purchasing a single supplemental product. If you want specific features rather than more coverage, you may be able to supplement your current policy with life insurance riders, such as accelerated death benefits, which allow you to withdraw a portion of your policy's proceeds if you become terminally ill.

Existing coverage: Before selecting supplemental coverage, review your current policy. You may already have AD&D, spouse or dependent life insurance included in your basic policy at no additional cost.

Portability: Although most employers provide basic life insurance for free, you may lose your coverage if you leave your job. Having your own supplemental life insurance policy, or one that can be taken with you, ensures that you are covered no matter where your career takes you.