What's the difference between basic and supplemental employee life insurance?
In short, basic group life insurance is an affordable or free policy offered through an employer's benefits program, while supplemental life insurance lets you to add to that coverage by paying an additional premium.
Many employers offer a basic group life insurance policy to employees for free or a minimal premium. These policies typically have a death benefit ranging from $25,000 to one or two times your annual salary, to be paid out to your beneficiaries if you pass away while you're employed by that company.
In addition to a basic policy, you may be able to buy supplemental life insurance through work that would increase your total death benefit for an additional premium. This additional coverage might appeal to you if your employer's basic life insurance coverage wouldn't be enough for your beneficiaries in the long run.
If you can't get supplemental life insurance through work, and even if you can, consider supplementing your coverage via a standalone policy from a private life insurance provider. Privately offered policies may be more affordable and give you more options than supplemental life insurance through work.
How much supplemental life insurance do I need?
Your total coverage from life insurance through work or private sources should depend on your budget 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 long-term expenses such as your mortgage and your kids' college tuition.
Suppose you make $50,000 annually, and your employer's basic group life insurance has a complimentary $50,000 death benefit. If you die while working for that employer, your beneficiaries will receive a one-time $50,000 payout. If you want to provide your beneficiaries 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 the basic life insurance available through your work.
How do I choose supplemental life insurance through an employer?
When buying supplemental life insurance through work, the type and amount of coverage available will depend on your employer. 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 coverage. Check with your employer's life insurance provider to find out your options.
Similar to employer group life insurance, supplemental life insurance through work 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 life insurance medical exam to see if you're eligible.
The cost of supplemental life insurance is sometimes based entirely on your age.
Supplemental life insurance rates are based largely, and sometimes completely, on your age. Some employers might subsidize your monthly premium, lowering your cost for the supplemental coverage.
What are the 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 two options:
Term or permanent life policies purchased privately
Unlike plans your employer offers, the coverage you purchase privately stays with you if you change employers or lose your job or benefits. While some policies require you to complete a medical exam to determine eligibility, private insurers typically offer cheaper coverage than supplemental policies through an employer. If you're interested in your private life insurance options, learn about how to buy life insurance.
Life insurance riders
If you're concerned about what might happen if a specific tragedy were to occur, you might be able to find a relevant life insurance rider that could help. For example, purchasing an accelerated death benefit rider would allow you to access your death benefit while you're still alive if you develop a qualifying serious illness.
Ask your employer's life insurance provider about the riders they offer. You may even have more rider choices if you purchase a private life insurance policy.
Is supplemental life insurance worth it?
If you want to make sure you have enough life insurance coverage beyond your employer's basic group life insurance 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 worth it 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.
Should I get life insurance through work or a private company?
Buying supplemental life insurance through work or a private company is a personal decision, but answering these questions can help you weigh your options.
- Are you thinking about changing jobs? If you don't anticipate staying with your current employer, your life insurance options may change when you get your new job. Choosing private life insurance can give you continuity as your career develops.
- Do you want to customize your coverage? If you have specific concerns, your options may be limited if you buy group life insurance versus individual life insurance. Buying private can let you customize your policy and better prepare for certain scenarios.
- How much supplemental life insurance do you need? When comparing your options, be sure to consider rates for the specific amount of coverage you need. In general, you'll pay more for a higher death benefit, but the exact rate increase will likely differ when you compare supplemental policies through work versus privately offered policies.
- Will you have trouble getting affordable private life insurance? One of the biggest factors when weighing group life insurance vs. individual life insurance is your age and health. Buying through an employer's life insurance may be a simpler option if your health disqualifies you from traditional private policies or significantly increases your rate.