How does supplemental life insurance work?
With supplemental life, the employer or association decides how much free coverage employees or members get, and how much more they can buy. The amounts are usually in multiples of salary. For example, you might get coverage equal to one year's salary for free. Then you could choose to pay for up to five times your salary in supplemental insurance.
You can sign up during your annual benefits enrollment period (or when you experience a life event such as a new baby or a spouse's job loss). In most cases, you won't have to take a medical exam or even answer health questions. And your premium payments typically come directly from your paycheck, which can take the sting out of the cost. If you should die while covered, your beneficiaries will receive the policy amount, just like with any life insurance.
What are the coverage options?
Supplemental life insurance typically falls into one of three categories:
Term. This is temporary life insurance that lasts for a stated period, e.g., 10 or 20 years. It's less expensive to buy, and the younger you are, the less it costs. But group term premiums typically rise over time because once the policy expires, to continue coverage you'd need to renew (buy another policy) when you're older—at a higher price.
Permanent. This coverage doesn't expire—it continues as long as you keep paying your premiums. The most common permanent policies are whole and universal life. With whole life, premium payments start out higher than term, but they don't increase over time; with universal life, you can pay more or less depending on your budget (provided you cover a minimum amount that usually rises each year). Note that if you can pay more early on, you can build the universal policy's cash value—and use that value to cover the policy's higher costs in the future.
Spouse/child. Your plan may also allow you to buy coverage at the lower group rate for your spouse and/or children.
Your actual choices will depend on what your employer or organization selected. That includes whether the policy is term or permanent (and what type), how much coverage you can buy, and whether extra coverage requires a health questionnaire or exam.
What are the advantages?
A key benefit of supplemental life insurance is that you may be able to get it without taking a medical exam.
For example, a group plan may allow you to buy up to $200,000 in coverage without health questions, and require "medical underwriting" only for larger amounts. This means you could qualify even with health issues—something that could be a hurdle with individual coverage.
Also, group life insurance is often cheaper than the same coverage would cost individually. Even if your employer doesn't pay for some of it, you might find a better deal on supplemental life than if you bought on your own. (That's not guaranteed, though, so you should price-shop before you buy.)
What are the drawbacks?
One downside to supplemental life is that you don't have much control over your coverage. Your employer decides what policies are available and how much you can buy. With standalone coverage, you can customize the policy to meet your specific needs.
And what if you leave the job or organization? With many supplemental life policies, your coverage simply ends. To stay insured at the same level, you'd have to buy individual coverage when you're older and it may be harder to qualify.
True, some supplemental policies are "portable"—you'd have the right to buy a policy through the group when you leave. Even so, the cost will be determined at that time, so you could more pay than if you'd bought your own coverage earlier.
Is supplemental life right for you?
Supplemental life works best as an addition to, not a replacement for, individual coverage. You can get extra insurance through a group plan—possibly at a discount—without having to worry about losing all your coverage if you leave the group.
That's why you might want to use different kinds of policies for different needs. For example, consider earmarking individual insurance to cover critical expenses (like your mortgage or children's college funds) and using supplemental coverage for "nice-to-haves" (like a future inheritance for your grandkids). A life insurance calculator can help you identify your goals and find the right balance.