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Supplemental life insurance is designed to supplement life insurance policies that employers provide. Some employers provide basic life insurance for free or at a low cost, and some also offer supplemental life insurance. You typically purchase supplemental life insurance as a financial cushion to cover funeral expenses for the policyholder or if your household’s primary wage earner can no longer work.

Supplemental life insurance: How does it work?

Supplemental life insurance is a life insurance policy that you can buy in addition to your basic life insurance to bolster your policy’s monetary benefits. You’d normally purchase this extra coverage if you thought your basic life insurance policy wouldn’t supply enough money for your beneficiaries. You can typically buy optional supplemental life insurance through your employer or through an insurance company.

Your basic life insurance may offer benefits of only one to two times the amount of your yearly salary. However, some insurance experts recommend that benefits from all your life insurance coverage should total seven to 10 times your annual income.

A common type of supplemental life insurance is called yearly renewable term life insurance, meaning you renew the coverage each year. By contrast, a basic life insurance policy may cover a period of 10, 20, or 30 years.[1]

Read More: 10 Best Life Insurance Companies

Supplemental life insurance beneficiary

Life insurance, including supplemental policies, offers financial protection for your beneficiaries after you die.[1] While you’re not required to do so, you can name beneficiaries for your life insurance coverage to ensure that the money — known as a death benefit — goes to the people you intended to receive it, such as your spouse or children.

Your beneficiaries can then put that money toward a number of things, such as funeral expenses, debt payoff, mortgage payments, or college tuition. Or your beneficiaries may simply stash the money in the bank for their retirement. You can even name a charity as a life insurance beneficiary.[2]

The death benefit for a life insurance policy is typically paid in a lump sum.[3] So, if you own a life insurance policy with a face value of $100,000, your beneficiaries generally would receive a death benefit of $100,000 following your death, as long as the policy remains in good standing.

Among the factors that may influence the face value of a life insurance policy are your age, income, and number of dependents.

Check Out: How Does Life Insurance Work? An Easy Guide

Where to find supplemental life insurance

You generally can obtain supplemental life insurance from your employer or a private insurance company.

Through your employer

Your employer may offer supplemental life insurance, also known as voluntary life insurance, to complement your basic workplace-sponsored life insurance. While you typically pay for supplemental life insurance on your own, some employers provide basic life insurance for free or at a low cost. Employers do this through group insurance, which is one contract that covers a group of people (like a company’s employees).

When you buy supplemental life insurance through your employer, you benefit from the power of group purchasing. Your employer gains cost advantages by going to a life insurer to acquire supplemental life insurance through group coverage. This means your employer is acquiring coverage for a number of people in your workplace, not just you alone.

Cost advantages of group coverage may include:

  • Lower premiums compared with a policy you’d purchase on your own

  • No medical exam requirements

  • Simple premium payments through payroll deduction

Supplemental Life Insurance Stats:

In 2022, 28% of workers reported that their employer pays for basic life insurance and they pay for their own supplemental life insurance, according to the Insurance Barometer Study.[4]

As of March 2022, more than half (57%) of private-sector workers had access to employer-sponsored life insurance, according to the U.S. Bureau of Labor Statistics.[5]

Read More: Save Money by Sharing a Group Term Life Insurance Plan

Through a private insurer

Aside from getting basic life insurance and supplemental life insurance through your employer, you may be able to purchase life insurance through a private insurance company. You might even be able to tack on private coverage as separate policies, riders, or policy add-ons.[6]

Extra coverage that may be available includes:

  • Accidental death and dismemberment (AD&D): This coverage pays out only when a covered accident leads to death, losing two arms, or losing sight in both eyes.[7]

  • Family benefit riders: Policyholders can add these riders to their basic life insurance policies. Children’s riders cover kids, including adopted children or stepchildren, who you have now or will have in the future. A family income rider pays a death benefit in monthly amounts to family members so they can replace income lost due to your death.[7]

  • Living benefit riders: This extra coverage lets policyholders use the funds from their policy to pay for medical expenses related to a terminal illness.[7]

  • Burial insurance: Burial insurance covers your funeral, burial, and other end-of-life costs.[8]

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Policy types: Can you cash out?

You generally can’t cash out a supplemental life insurance policy because it’s usually a term policy, which doesn’t build cash value. Term life insurance only lasts for a predetermined time.

However, some supplemental life insurance policies do let policyholders withdraw cash value. This option is typically for permanent life insurance policies, such as whole life or universal life insurance, rather than term life.[3] Permanent life insurance lasts throughout your life, while term life insurance expires at a certain point.

What happens to supplemental life insurance when you leave a job?

If you obtained supplemental life insurance through your employer, the coverage typically ends when you leave your job. You may be able to take the coverage with you, but it won’t be employer-sponsored anymore; this is known as portability. Or you might be able to convert your supplemental coverage into a permanent life insurance policy.

  • Portability: Depending on your policy, your supplemental life insurance may be portable. You usually must decide within 30 to 60 days after leaving a job whether you want to keep the supplemental coverage. After porting your life insurance policy, you’ll be responsible for the full amount of the premiums.

  • Conversion: You may be able to convert all or part of a supplemental policy obtained through group insurance without a medical exam. The conversion period may last for only a short time, such as 31 days. Again, you’ll be fully responsible for the premiums since you won’t be under an employer-sponsored plan.

What to consider before buying supplemental life insurance

Before you purchase supplemental life insurance, it may be worth your time to visit with a licensed insurance agent or a qualified financial adviser. These professionals can review your options with you and figure out how this coverage would fit into your long-term financial goals.

Even if you don’t seek professional advice, at least be sure to compare supplemental coverage from several insurers before choosing a policy.

Supplemental life insurance FAQs

Here are answers to some frequently asked questions about supplemental life insurance.

  • Regardless of where you obtain supplemental life insurance, you get to decide who receives the policy’s death benefit. And you can name one beneficiary or several beneficiaries, such as your spouse, your children, or your favorite charity.

  • Life insurance generally refers to basic coverage that you get as a workplace benefit or that you buy on your own. Supplemental life insurance is extra coverage, beyond your basic policy, that you must pay for — either through your employer or through a private insurance company.

  • You usually can’t cash out a supplemental life insurance policy because it’s a term life policy, which doesn’t accumulate cash value. However, you may be able to cash out a supplemental life insurance policy if it happens to be permanent life insurance, which does build cash value.[3]

  • Group life insurance is a type of coverage provided under one contract to an entire workforce or organization. Employers offer life insurance as a free or low-cost perk for their workers. Nearly one-third of American adults said a major reason they have life insurance is that it’s an employer-provided benefit, according to the Insurance Barometer Study.[4]

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  1. NAIC. "Life Insurance." Accessed January 25, 2023
  2. III. "What is a beneficiary?." Accessed January 25, 2023
  3. Texas Department of Insurance. "Life insurance guide." Accessed January 25, 2023
  4. LIMRA & Life Happens. "2022 Insurance Barometer Study." Accessed January 25, 2023
  5. Bureau of Labor Statistics. "Employee Benefits in the United States – March 2022." Accessed January 25, 2023
  6. Louisiana Department of Insurance. "Insurance 101: What is an Insurance Endorsement or Rider?." Accessed January 25, 2023
  7. III. "Insurance Handbook." Accessed January 25, 2023
  8. III. "What is burial insurance?." Accessed January 25, 2023
John Egan
John Egan

John Egan is a freelance writer and content marketing strategist in Austin, Texas. His specialties include personal finance, real estate, and health and wellness. John’s work has been published by outlets such as, Bankrate, Forbes Advisor, Experian, Capital One, The Balance and U.S. News & World Report. He is the author of The Stripped-Down Guide to Content Marketing.