Open enrollment is RIGHT NOW for many employers. It’s a great time of year to do your homework and make some changes with your employee benefits. One area you may want to take an extended look at is supplemental life insurance.
According to the BLS, 60% of US employers offer life insurance benefits for full-time employees, much higher than I had expected. This life insurance coverage typically comes in the form of a basic term life insurance plan that is a multiple of the employee’s annual salary (I’ve seen as low as 1X and as high as 3X, but I’m sure some go higher). This amount is paid to the listed beneficiary in the unfortunate event of the employee’s death, if the policy is still active at the time of death. Some employer’s make you opt in to this basic insurance coverage, but there is typically not a premium charge for this coverage.
In addition to employer-sponsored basic term life insurance plans (which are a no-brainer if your employer is offering to pay the premiums), many employers will also offer a voluntary supplemental life insurance. This is where things can get a bit tricky for the employee. What is supplemental life insurance and should you buy it through your employer? Let’s take a look…
What is Supplemental Life Insurance?
Supplemental life insurance offered by an employer is additional term life insurance that you can purchase that is above and beyond the employer-provided basic coverage. As with basic coverage, it usually can be bought in the form of a multiple of your annual salary. And it is deducted from payroll.
For example, if you choose to elect supplemental coverage of 4X annual salary and you have 3X annual salary through your employer’s basic plan, then you will be covered for a total of 7x annual salary coverage (4X from voluntary supplemental life insurance + 3X from basic life insurance).
Additionally, some supplemental life insurance policies allow you to purchase coverage for a spouse and/or children (note: I have yet to see a worthwhile scenario to purchase a life insurance policy for a child).
Benefits of Supplemental Life Insurance Through an Employer
Here are the biggest benefits of buying supplemental life insurance through your employer:
- Rates: Employers get a group insurance rate (similar to group health insurance), which can be lower than individual life insurance rates that you might find elsewhere. The employer might even subsidize part of the premiums. If you are not in the best of health, you might pay significantly less through a group plan than individually (more on that in a bit).
- Insurability: It’s much easier to get insured through a group plan and you pay the same rate as everyone else. don’t need a medical exam for group insurance. With most group life insurance policies you need to answer some medical questions before qualifying for coverage, but you don’t need to take a medical exam or provide the same level of detail that you need to provide for individual coverage.
- Ease: With a few clicks of button (or medieval paperwork), you’ve got yourself a term life insurance plan. No need for lengthy questionnaires or medical exams.
Downside of Supplemental Life Insurance Through an Employer
Here are the biggest downsides of buying supplemental life insurance through an employer:
- Rates: Wait, didn’t I just write that rates can be lower through a group supplemental policy than individual? They can be, but it’s not a guarantee. If you are a young, healthy, non-smoker – then you may be able to get an individual plan for cheaper than a group rate. This is because group plans include employees of all ages and health. Life insurance is very similar to health insurance in this regard.
- Portability: Employer life insurance policies are rarely portable, and if they are, it typically comes with higher rates. If a plan is not portable and you leave your employer, your policy ends. This can be a big downside because it may force you to go shopping for life insurance each time you leave an employer (particularly if the next one doesn’t offer a supplemental policy). And as you age, the price of individual insurance will increase. If you buy an individual plan you can lock in a rate for 10, 15, 20, 25, or 30 years. The average duration of employment is less than 2 years for those in their 20’s and early 30’s.
- Customization: You don’t have the ability to be as custom with an employer-sponsored policy – such as adding things like an accelerated death benefit.
How Much Supplemental Life Insurance Should you Buy?
As mentioned earlier, open enrollment is right now for most employers. It’s a great time to shop and compare the premium rate your employer is quoting for their supplemental group policy versus what you can get individually.
I previously gave an in-depth overview of how much life insurance you should buy. All the same rules apply, whether you are buying through a group employer plan or through an individual plan. Shop around, find the best price (individual or group through your employer), and buy only what you need. Good luck!
Related Posts:
The option of getting the insurance for the spouse and children is often more useful than on the worker. You might be better covered by putting your spouse on your plan and you on your spouse’s plan.
I’m 62 years old, and although my observations are anecdotal, I have known several people who died during their working years. People have died of accidents and heart attacks and cancer and other lingering diseases. Most of these people did not die suddenly, but were sick or incapacitated for a period of time before death. So they stopped working before death and the life insurance stopped when they stopped working, so no payout.
If the spouse had the insurance, the spouse would still be employed and the coverage maintained until the actual death.
Also, get it for children because many deaths incur significant medical debt before the actual death.
That’s a very good point. Although buying insurance by yourself may be more expensive than through your employer (or may not, depends on specifics), it’s a lot safer in that the rates are guaranteed for the specified time frame as long as you pay your premiums. If the worst should happen and you’re diagnosed with an illness that stops you from working, your dependents are hit with a double whammy of loss of your income while you’re alive, and then no safety net once you pass away – not to mention the emotional strife.
For this reason, unless your policy allows you to keep it and pay reasonable premiums once you leave the company, I’m in favor of buying life insurance on the independent market. You may pay a bit more, but it brings so much more piece of mind – and that’s really all insurance is for the purchaser, piece of mind on behalf of his loved ones.
I pay $2.26 every two weeks for my supplemental life insurance. Should I die, it’ll pay 5x my annual salary. Seems like a good deal to me.
Supplemental term life insurance through an employer does not provide the benefits of life insurance available in the marketplace, especially for Millennials.
Millennials tend to move more frequently geographically than other age groups plus have the tendency to change careers. These supplemental term policies through employers are not portable.
Purchasing term insurance through a top-flight mutual company will open the ability to convert that term policy to a permanent policy when either life event calls for it, or the cost of the term policy starts to equal that of a permanent policy.
Some mutual company’s offer opportunity for additional purchase benefit without needing additional underwriting for more term insurance.
The open marketplace allows you to compare costs for similar products across many providers.
Most importantly, a financial professional with the right company can offer life insurance as part of a comprehensive financial plan that addresses risk of dying too soon, becoming critically disabled, a long-term chronic illness, wealth accumulation for retirement and wealth distribution/preservation in retirement. Company sponsored supplemental additional life insurance puts the pressure on an individual to “guess” what coverage they need without taking considerations of goals, risks, life events.
My mom worked for a company for 18+ years and paid for a supplemental life insurance policy. She became I’ll and was put on short term disability. After returning to work for a bit she fell I’ll again and in January of 2016 was put on long term disability through her long term disability insurance. She passed away in march on 2016 and they are denying the claim for supplemental benefits due to her no longer being employed. We live in the state of Texas. ten
What it seems to me is this supplemental insurance acts very much like AD&D insurance….you have to die while you’re actively employed to get it. Even if it’s not an accident, you can’t be out sick beforehand. I didn’t know this.. Thanks for the information.
nice information
I have Voluntary/Supplemental Life insurance that was portable when I retired. I have coverage for me and my spouse. If I pass away first will he be able to keep his policy?
I don’t think you should ever say that it’s not worthwhile to get life insurance for your child. My daughter died at 17. Luckily I purchased a life insurance policy for her & her brother.
The grief is overwhelming. At least we had peace knowing we could give her a nice funeral, headstone, etc and not have to worry about how to pay for it. No parent should ever have to bury their child. But adding expense on top of it is completely overwhelming.
The best time to get life insurance is when they are children because the rates are very inexpensive & they will pay that same amount their whole life.
I like what you said about getting a lower group rate by getting life insurance with your employer. My husband and I are considering getting policies to cover each of us in case of accidents since we’re both still young and in good health. Thank you for the information about how some employers will even subsidize part of the premiums. It’s certainly something to look into.
Is the coverage provided on a supplemental life insurance plan sufficient to take care of a family of four after the demise of the sole breadwinner?
I opted for the most voluntary term life I could get when I was hired, but am not making enough to keep paying the premiums. But HR at my company says I can’t quit the “voluntary” life insurance. How can this be true? FYI I live and work in California.
A Good information provided. Supplemental insurance is extra or additional insurance that you can purchase to help you pay for services and out-of-pocket expenses that your regular insurance does not cover. Such plans are neither intended to stand alone nor replace your regular health insurance. Supplemental insurance is just that: a supplement.
That is nice that you get a group rate. It would be nice to have life insurance through my company. Then we wouldn’t have to pay as much for it.
I have my basic coverage, child coverage, and supplemental through my employer. I work for a very, very large health insurance company and the rates are great. It is not true about not needing a medical exam. I purchased 6x my salary with supplemental and needed a home health exam which included blood withdraw. This was a requirement due to my election of 6x y salary. It depends on your employers rules and the amount you choose. I agree with the other reviewer, if you have a child the last thing you ever want to think about is something happening to them, but knowing you have coverage during a time like that is important. Like she said, you don’t want to worry about how you will pay for things during something absolutely terrible like that..
I liked that you said that one thing to consider is buying supplemental life insurance, which will provide greater coverage past the normal amount that your employer offers its employees. I would imagine that this would help make sure that your family would be better-taken care of if you were to be unable to support them anymore. I would be sure to consider purchasing supplemental life insurance in order to achieve peace of mind in knowing that my family would always be taken care of, even if I was gone.