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Supplemental Life Insurance

What is Supplemental Life Insurance?

Supplemental life insurance is additional life insurance coverage offered by some employers. The employee generally pays for this expansion to their existing group life benefits.

Understanding supplemental life insurance

If you work for a company that offers life insurance coverage as part of their benefits package, you may have a policy in place that costs you very little, or nothing at all. The issue, though, is that this group life insurance coverage usually comes with a low death benefit.

While experts generally recommend having life insurance with a death benefit of at least five times your annual salary, most group life policies only offer a benefit of one or two times your annual pay.

Enter: supplemental life insurance, which is extra coverage that you pay for. Supplemental life insurance gives you a way to expand the protections you get through your workplace. And that means you generally won’t have to go through an extensive underwriting process to get it. Plus, you’ll pay for it out of your paycheck, which means you won’t risk a policy lapse because of a missed premium payment.

That makes employer-offered supplemental life insurance relatively easy to get and maintain, but it might not be the best option for everyone. Before we explore the pros and cons, though, it’s helpful to first know what supplemental life insurance can do.

Types of supplemental life insurance

Many supplemental life insurance policies increase the death benefit of your group life policy. You may have the option to pay more to get more coverage, up to a certain limit set by your company.

Beyond that, you may also have the option to buy supplemental life insurance to expand where your policy applies. Specifically, you may be able to buy supplemental coverage to insure your spouse or your children.

Your company may also offer supplemental accidental death and dismemberment life insurance, which pays out if you die or get seriously hurt in an accident.

When to buy supplement life insurance

Because supplemental life insurance gives you an easy way to bolster your life insurance coverage, it might look appealing. Life insurance experts generally recommend shopping around before you opt to go the employer-sponsored route, though.

For starters, you may be able to get the same amount of life insurance coverage for a lower cost if you buy the policy independent of your workplace. If you’re not looking for a large amount of extra coverage, a final expense policy can be a low-cost way to get what you need.

That value-for-dollar issue is especially pertinent because some supplemental life policies get reevaluated during each open enrollment period. If your supplemental coverage doesn’t have fixed premiums, you could end up paying more and more for your coverage through the years.

It’s also important to look into your supplemental life insurance policy’s portability. If the policy is portable, you’ll be able to convert it into a personal policy and take it with you if you leave your employer, retire, or get fired. Without portability, your coverage evaporates as soon as you leave the company.

All this said, supplemental life insurance might make sense if you have a health condition that would make private life insurance hard to get or more expensive. It gives you a way to skip the medical underwriting that comes with personal policies.

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