February 10, 2021

Supplemental life insurance is additional coverage that usually is purchased atop an existing policy. If your employer provides your basic life insurance policy, supplemental can be used to cover a spouse or dependent. Whether through your employer or a private insurer, it is important to understand what this type of insurance is, and whether or not it serves your needs to add it to your policy. 

Learn everything you need to know about supplemental life policies through your employer or a private insurance company. Find out how supplemental policies work and what they cover. And, see whether it makes sense to add a supplemental policy to your existing life insurance.

What is Supplemental Life Insurance and Do I Need it? 

The purpose of supplemental life insurance is to increase the amount of insurance your term life policy covers. Normally, your employer-offered term life insurance policy is between $15,000 to around $25,000. Adding an extra term life insurance policy can increase it to around $80,000 to $100,000.

One of the reasons you might look into purchasing a supplemental policy for your term life insurance is if pre-existing conditions make it difficult for you to get adequate coverage in your base policy. Or, maybe your base life insurance doesn’t cover your spouse or children, whereas a supplemental policy will. In other cases, a supplemental policy might be able to carry to a new place of work, whereas your base life insurance only exists through your current employer. 

Determine How Much Extra Life Insurance You Need

The amount of extra life insurance you need is determined, by estimating the level of the financial burden your death will incur, compared to the amount of coverage provided through your current life insurance policy. Is it enough to cover the costs? In general, you should look for coverage of at least 5-times your annual income. 

If your life insurance amounts to more than 20-times your annual income, you probably are over-insured. That being said – everyone’s financial situation and personal circumstances vary. So, there is rarely a one-size-fits-all solution when it comes to how much life insurance you should have.

A good place to start is to think about how many individuals rely on your income. If you have children you are likely to have more fiscal responsibilities on your shoulders, for which supplemental insurance can account. Or, if the nature of your occupation is particularly hazardous to your health or life, it might be responsible to purchase additional insurance.  

What Does a Supplemental Life Policy Cover?

In general, it works to increase your policy payout for two main reasons. It can be used to fill in the gaps where a term life policy falls short. Or, it can work to increase the overall value and extend the coverage provided under a whole or permanent life insurance policy. 

Most of the time, access to supplemental life coverage is contingent on the group term life policy provided by an employer. Many policies are conditional on your employment status from where the policy is provided, and supplemental insurance only exists within an employer’s group policy. Some insurers, however, offer portable policies, which you can convert from the group to a personal policy – in which case, you may be able to retain the base and supplemental policy.

4 Main Types of Supplemental Term Insurance

Through an employer, there are four primary forms that supplemental insurance takes. First, it can supplement the coverage amount on your current life insurance. The second and third types of supplemental insurance work to cover the life of the primary policy holder’s spouse or domestic partner, and to cover the life of a child or dependent. 

Most insurers require the primary policyholder to purchase supplemental for themselves before adding supplemental for a spouse or child. The fourth type of coverage is supplemental accidental death and dismemberment (AD&A) insurance. AD&A coverage pays out if you are critically injured or killed. 

At the end of the day, the amount of term life insurance offered might be enough to cover your family’s financial need in the event of your untimely death. But, for many families, it is not enough without additional coverage from a supplemental policy. Talk to an insurance associate for a free consultation and professional advice on whether supplemental life insurance is worth it for you.