Everyone lives life differently. Insuring the life of Stanley the bachelor with no dependents isn’t the same as insuring the life of his coworker Erica with dependents. Imagine Stanley and Erica have the same group policy through work. A supplemental life insurance policy bridges the gap between your basic policy and your needs. Stanley may not need more coverage, but Erica might. She can buy extra coverage with a supplemental policy.

With Insurify, you can bridge the gap of your valuable time and your laborious search for the right life insurance policy. Insurify is a life insurance comparison tool that will provide you with a list of life insurance quotes from insurers for you to assess, in a matter of minutes.

What Is Supplemental Life Insurance and How Does It Work?

Supplemental life insurance is a type of insurance you can purchase for additional coverage. Supplemental insurance may increase your death benefit, provide coverage for your spouse and dependents, or provide funds if you suffer from a disability or accident. If your employer offers an employee benefits package, you can buy it through your employer or from private insurers.

Group life Insurance 

Group life insurance, also called voluntary life insurance, is most commonly found in employee benefits packages, which usually include health insurance. The death benefit is typically a multiple of your annual salary. Employers may pay all or some of the premiums. If your employer partially pays for the policy and you are responsible for the rest of the monthly premiums, your participation is voluntary, not required. 

If the base amount of your group policy isn’t enough to cover your needs, you can buy supplemental insurance, also called supplemental voluntary insurance, to increase the value of your coverage. Your employer may also offer supplemental insurance for added benefits like long-term care. If you choose to opt out of voluntary life insurance, you usually have the option to opt in during your company’s open enrollment.

Private Insurers

Private insurers are life insurance companies that offer life insurance to the public. If you buy an individual policy through a private insurer, your life insurance company may offer supplemental insurance that adds value or benefits to your base policy through products called riders. You may also choose to buy a term or permanent life insurance policy from a private insurer to supplement your group coverage.

Riders and Supplemental Benefits

Individual life insurance carriers may offer similar or identical riders to the ones from the supplemental insurance your employer offers. Traditional supplemental policies and riders include accidental death and dismemberment insurance, children’s and family term riders, and living benefits riders.

Accidental Death and Dismemberment

Also called AD&D insurance, accidental death and dismemberment supplemental insurance may double or triple your base amount of coverage if you pass away due to an accident. The dismemberment portion of the benefit covers partial or full impairment due to loss of a limb or bodily function, such as seeing or hearing. Usually, half of the benefit is paid for partial impairment, and the full benefit is paid for full impairment. 

Children’s and Family Term Riders

Children’s riders and supplemental insurance add a modest amount of coverage to your policy to cover expenses should your child pass away. You may also choose to designate a percentage of your policy’s base insurance to cover your child’s funeral expenses through a rider. Family term insurance covers multiple family members, like your spouse or domestic partner and your children, with equal amounts of insurance.

Living Benefit Riders

Living benefit riders and supplemental insurance may pay accelerated benefits or add an additional amount of coverage should you become terminally ill or disabled. Accelerated benefits will pay a portion of your policy’s death benefit if you become terminally ill or disabled. Long-term care supplemental policies may add additional benefits or withdraw from your policy’s face amount if you become terminally ill or disabled.

Can I Cash Out My Supplemental Life Insurance?

Cashing out a supplemental life insurance policy involves your policy’s cash value. Depending on the type of policy you have through your employer or private insurer, you may be able to withdraw funds, take out a loan, or pay your premiums with your policy’s cash value. You may also surrender your policy and pocket the accumulated cash value.

Term Life Insurance

Term life insurance is a type of coverage that lasts for a limited time, and then expires. If you pass away within the time frame, or term, the policy will pay out the death benefit to your beneficiaries. With an individual term life policy, if you outlive the policy, it expires without a payout but can usually be renewed with a premium increase. These policies do not grow cash value and cannot be cashed out.

Group Term Life Insurance

Most employer-sponsored group plans are a form of annually renewable term life insurance. Employees get a certificate of insurance, while the employer holds the master policy. You may purchase supplemental life insurance coverage to increase the value of your death benefit, and the premiums may be taken from your paychecks. Like individual term life insurance, these policies do not accrue cash value. 

Whole Life Insurance

Whole life insurance is any form of permanent life insurance that accumulates cash value on the premiums you pay. Traditional whole life policies have a guaranteed death benefit and grow cash value in the insurer‘s general account, where it moderately grows in conservative investment assets. Cash value is guaranteed at a minimum rate, whereas the cash value of other types of whole life policies is dependent on the market.

Variable Life Insurance

Variable life insurance is a type of whole life insurance where premiums are put into investment subaccounts where they grow cash value. As the policyholder, you own the subaccounts, and the life insurance company guarantees a minimum death benefit, which is the face amount of the policy. However, the cash value and the death benefit fluctuate with market performance. 

Universal Life Insurance

Universal life insurance is a flexible whole life policy where you can increase premiums, decrease premiums, or not pay any premiums. You may decrease or increase the death benefit, subject to insurability. These types of life insurance policies have a minimum interest guarantee and a specified death benefit. Like variable life insurance, the death benefit and the cash value rise and fall with the market.

Variable Universal Life Insurance

Variable universal life insurance plans have features of both universal life and variable life insurance. Like variable life insurance, premiums are placed into investment subaccounts where cash value depends on the performance of the subaccounts. Like universal life insurance, premiums are flexible and can be increased, decreased, or eliminated by using the cash value to pay premiums.

Group Whole Life Insurance

If you have a group whole life insurance policy through your employer, you may cash out on cash value. Group whole life insurance policies include group whole life, group variable life, group universal life, and group variable universal life. If you would like to purchase additional life insurance with these types of policies, life insurance rates will be higher than if you had a group term life policy.

Policy Loans and Withdrawals

You can cash out on your supplemental whole life insurance policy in a number of ways. Once your policy develops cash value, you can use it to cover your premiums, take out loans, or make withdrawals. You may also decide to partially or fully surrender your supplemental life insurance and receive the cash value.

Cash Value Loans

You can borrow against the cash value of your whole life insurance policy. In this process, you borrow money from your insurer, using your cash value as collateral. The loan provided by the insurer accrues interest, while your policy’s cash value continues to earn interest. 

Although you are not required to pay back a cash value loan, your insurer will recover the outstanding loan balance. If you pass away, your loan will be paid from your death benefit. If you surrender the policy, the loan will be deducted from the cash value, and the balance will be given to you. Your loan plus interest must not be more than the cash surrender value, or the policy will be canceled.

Withdrawals

Universal life insurance allows for withdrawals but not loans from your cash value. You may withdraw any amount as long as it does not exceed the current cash value. A universal life policy will stay in force as long as your premiums can be deducted from your cash value. 

Withdrawals are not loans; they do not grow interest, and you cannot repay them. If you try to repay your withdrawals, they will be treated as premium payments. Instead, the amount is taken from your policy’s cash value and death benefit. To minimize how often policyholders take out small sums, insurers usually require withdrawals to exceed a stated amount.

Surrenders and Partial Surrenders

At any time, you can surrender your policy and receive the cash value; however, the policy cannot be reinstated. Some policies, excluding universal life insurance, allow for partial surrenders. Instead of surrendering the policy completely, you are essentially surrendering a portion of the death benefit and receiving a proportionate amount of the cash value that grew from your premiums.

What Is a Supplemental Life Insurance Beneficiary?

The purpose of life insurance is to distribute an amount of money to your loved ones so they may maintain their lifestyle, handle funeral expenses, repay any unpaid debt, and more. The person or entity you name as your beneficiary receives the policy proceeds upon the death of the insured. It is the policyholders right to name the beneficiary or beneficiaries.

If you have a group life insurance policy through your work or any other association, your employer or association is the policyholder. Insured employees or members have the right to name a beneficiary. You also may name the beneficiaries for the supplemental insurance, such as term life riders, that increases your amount of coverage.

Your beneficiaries receive the amount of the policy’s death benefit minus any outstanding loans or withdrawals. If you have supplemental living benefits, such as accelerated death benefits or long-term care, your policy’s proceeds will pay out the benefit amount less the amount of coverage used as living benefits for terminal illness or long-term care.

What Happens to Supplemental Life Insurance When You Leave a Job?

If you are leaving your job and have supplemental life insurance through your employer, your coverage will normally lapse after the grace period ends. For people who don’t have life insurance outside of their employer, this could pose a problem because they could be uninsurable by the time they leave their job. If your group life insurance is portable and convertible, you could avoid this issue.

Conversion Privilege

The conversion privilege allows participants of a group life insurance policy to convert it to an individual life insurance policy with an equal death benefit without proving insurability. Typically, the conversion must be requested within 31 days of leaving your job, and during this time, your policy is still in force. Usually, you can only convert your coverage to whole life insurance, but some employers may offer term policies.

Portability

A portable group life insurance plan gives the participants the ability to convert or “port” the policy to an individual term life insurance policy without evidence of insurability. As with converting, you usually have to request to port your coverage within 31 days after leaving your employer. Because term life insurance is usually less expensive than whole life insurance, porting your policy is less expensive. 

Insurify takes your basic information and produces a list of life insurance quotes from top insurers. Answer a few short questions, like how much life insurance you want to buy, your state of residence, and your age, and in minutes, you’ll have a list of quotes to compare. You can even purchase right from the site.

Frequently Asked Questions

What is supplemental life insurance?

Supplemental life insurance is a type of insurance that adds coverage or additional benefits to your base policy. If you have a group life insurance policy with your employer and would like to purchase additional coverage, your company may offer supplemental insurance and may take your monthly premiums from your paychecks.

Is it better to get supplemental insurance with your employer or with a private insurer?

It depends. If you need additional coverage that your group policy doesn’t offer, it may be more convenient for premiums to be taken from your pay than to pay them separately. At the same time, once you leave your job, you will only be able to take your policy with you if it is portable or convertible. If your policy is neither, purchasing supplemental insurance from a private insurer will assure you remain insured.

Do I get to choose my beneficiary with my employer's supplemental insurance?

Group life insurance policies provide a provision that states participants have the right to designate their beneficiaries. You have the same right when you purchase additional coverage. 

Conclusion

An employee benefits package is a perk of any place of employment. It may seem impractical to pay for additional insurance when you have a group policy placed before you. Most group life policies’ benefit amounts are multiples of your annual salary, typically two to three years. Usually, people want to continue to provide for their loved ones after they pass away. This is where supplemental life insurance really shines.

You can trust Insurify to lead you in the right direction when you’re searching for the right life insurance policy to cover you and your loved ones’ needs. Insurify is a life insurance comparison tool that is fast and easy to use. Let Insurify light the way; you won’t be aiming in the dark.

Updated November 2, 2021

Aissa Martell is a licensed insurance producer in the State of New York. She is a creative writer and has been freelance writing for five years. She’s happy to share her knowledge of the insurance industry and its products.