What's the difference between basic and supplemental employee life insurance?

A basic life insurance policy offered through an employer is typically free or has a minimal premium and offers a death benefit that might range from $25,000 to one or two times your annual salary, while you're employed by that company.

In addition to a basic policy, supplemental life insurance coverage might be offered by an employer for an additional premium. You might decide to pay for this additional coverage if your employer's basic life insurance coverage wouldn't be enough for your beneficiaries in the long run. If your employer doesn't offer supplemental life insurance, you can look into buying a policy independently to supplement your coverage.

How much supplemental life insurance do I need?

Industry experts suggest that your total coverage from life insurance should be anywhere from seven to 10 times your annual income, depending on your circumstances and your beneficiaries' needs. Consider how many dependents you're providing for — including non-earning spouses, children, and aging parents under your care — and how long they might need financial support if something were to happen to you. Remember to factor in additional expenses such as a mortgage and college tuition.

Suppose you make $50,000 annually and your employer's basic life insurance has a complementary $50,000 death benefit. If you die while you still work for that employer, your beneficiaries will receive a one-time $50,000 payout. But how will the income you provided your loved ones be replaced in the long run? If you want to provide them with a payout to replace five years of your income, you might choose to purchase $200,000 (or more) in supplemental life insurance coverage on top of your employer's basic coverage.

Optional life insurance through an employer

When buying a supplemental life insurance policy through your employer, the type and amount of coverage will vary by company. Some offer riders or term and whole life options, while others may only allow you to purchase additional accidental death and dismemberment or burial insurance. Check with your employer's insurance provider to see the options available to you.

Similar to employer-sponsored group life insurance, supplemental insurance offers a death benefit up to a specific amount. It may be possible to obtain additional coverage beyond your employer's set limits for supplemental policies, but you'd need to work with the insurer to do so. You may need to share financial information or undergo a full medical exam to see if you're eligible.

The cost of supplemental life insurance is sometimes based entirely on your age.

Note that supplemental life insurance costs are based largely, and sometimes completely, on your age. Some employers might subsidize your monthly premiums, lowering your cost.

Alternatives to supplemental life insurance

Purchasing life insurance through a private life insurance company might be more affordable and flexible than buying an employer-offered supplemental life insurance coverage. Consider these options:

Term or permanent life policies purchased separately

Unlike plans offered through your employer, coverage you purchase separately stays with you if you change employers or lose your job or benefits. While you'll need to complete a medical exam to determine eligibility, policies directly from private insurers are typically cheaper than the total cost of supplemental policies offered through employers. Learn more about how to buy life insurance.

Life insurance riders

If you only need a small bump in your employer's basic coverage, or if you're concerned about what might happen if a specific tragedy were to occur, you might be able to find a relevant rider you can add to an existing life insurance policy. For example, purchasing an accidental death rider would provide an additional payout to your beneficiaries if you were to die as the result of a covered accident.

Do I need supplemental life insurance?

If you want to make sure you have enough life insurance coverage beyond your employer's basic group life policy, some form of supplemental insurance makes sense. While it may be more expensive than typical private life insurance policies, going through your employer for supplemental coverage can be a good choice if you've had difficulty getting traditional coverage due to your age or an illness. Compare your employer's supplemental offerings with similar policies you can get privately to find adequate coverage at a rate you can afford.