What is Supplemental Life Insurance and Do You Need It?

Supplemental life insurance is additional coverage on top of your employer’s group life insurance policy. It is designed to provide extra financial protection for your loved ones in case of your unexpected death. The coverage amount is usually based on your salary and can be purchased through your employer or an insurance company.

Why Would You Need Supplemental Life Insurance?

Most group life insurance benefits only cover your salary for a year or two. For someone making $50,000 a year, that’s only $100,000 in life insurance coverage. For anyone with small kids or a large mortgage (or both), that’s probably not enough. Supplemental life insurance can help you bridge the gap between your current coverage and the amount of coverage you actually need.

How Does Supplemental Life Insurance Work?

Supplemental life insurance works by paying out a lump sum of money to your beneficiaries in the event of your death. The amount of coverage you can purchase depends on your employer’s policy and the insurance company you choose. The premiums for supplemental life insurance are usually higher than those for group life insurance, but they are still affordable.

Should You Get Supplemental Life Insurance?

If you have people who depend on you financially, then life insurance of all kinds can provide a sense of comfort. Funeral costs, therapy for survivors, college tuition, debt, and other kinds of expenses will continue for loved ones even if you’re incapacitated. Life insurance policies will provide for your beneficiaries in the event of most kinds of death, mostly rendering AD&D insurance unnecessary. It’s probably also included in your employer’s benefits package, so it’s worth checking to see if you’re already covered.

Supplemental coverage is an easy way to get life insurance. After all, nothing is more convenient than HR preparing all the documents for you and your employer paying the premiums. However, supplemental life insurance you get through your employer is likely to be more expensive than if you get it elsewhere. After all, insurance companies know that it’s much more convenient for you to get a policy with the same insurer you already have basic coverage with. It gives them a bit more pricing power. They are in the business to make money, after all.

Pros and Cons of Supplemental Life Insurance

  • Pro: It’s affordable
  • Pro: There’s likely no medical exam
  • Pro: You may be able to get coverage without answering health questions
  • Pro: It can cost less than individual insurance
  • Pro: It can provide extra support for your loved ones if you pass away unexpectedly
  • Con: The coverage is typically not portable
  • Con: If you leave the employer, you’ll need to get coverage on your own (or convert it to an individual policy, usually with a higher premium) 
  • Con: Supplemental life insurance is typically term life insurance, meaning it does not have a cash value component
  • Con: The premiums for supplemental life insurance are usually higher than those for group life insurance

Tax Considerations for Supplemental Life Insurance

  • The imputed cost of coverage in excess of $50,000 is subject to federal income tax
  • The value of your spouse’s life insurance coverage is subject to federal income, Massachusetts state income, and Social Security taxes.

How to Get Supplemental Life Insurance

  • It can be purchased through your employer or an insurance company.
  • The cost of supplemental life insurance will increase with your age or with an increase in the amount of coverage you have.
  • Some supplemental life policies allow employees to convert the coverage to individual life insurance policies.

In conclusion, supplemental life insurance can be a valuable addition to your financial plan if you need more coverage than your employer’s group life insurance policy provides. It’s important to carefully consider your options and choose a policy that meets your needs and budget.

Learn more about Life Insurance here.

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