What Supplemental Life Insurance Is and Who Should Buy It

Supplemental life insurance is an optional add-on that employees can purchase to increase their basic life insurance coverage. This type of insurance is particularly beneficial for those who find their employer-provided basic life insurance insufficient for their family's needs. It can be a strategic choice for those seeking a cost-effective method to enhance their life insurance benefits beyond the basic coverage, which often only covers minimal funeral expenses.

Postal and governmental employees get Federal Employees’ Government Life Insurance (FEGLI), which grants postal employees free coverage, and government employees pay two-thirds of the cost. Optional supplemental life is an upgrade add-on you can choose at your own expense.

• Defining Supplemental Life Insurance
• How Supplemental Life Insurance Works
• Cost of Supplemental Life Insurance
• Pros and Cons of Supplemental Life Insurance
• Who Benefits Most from Supplemental Life Insurance
• Determining How Much Supplemental Life Insurance to Buy

Supplemental life insurance is additional coverage that enhances an existing life insurance policy. It's often used when basic employer-provided insurance is insufficient and offers extra financial protection for specific needs like funeral expenses or the well-being of dependents.

Unlike standard life insurance policies, supplemental insurance is not a standalone product but an add-on to existing coverage. It allows policyholders to tailor their insurance to their unique needs — often without a medical exam — and is typically more affordable and accessible through group rates provided by employers.

Supplemental life insurance works by providing more coverage than employer-provided life insurance coverage that may not meet the needs of breadwinners and high-income earners. After selecting basic life insurance coverage, the employee will have the option to add supplemental life coverage. A supplemental life plan can be a cheaper, faster and easier way to get more coverage without meeting the strict requirements most traditional life insurers require of applicants.

This add-on coverage has several specific characteristics, including:

Eligibility for supplemental life insurance typically extends to employees who already participate in their employer's basic life insurance plan. This option is available to certain groups, providing a straightforward path to additional coverage.

Private Sector Employees

Employee supplemental life insurance upgrades the basic life insurance offered through employer-sponsored benefits as part of a compensation package. Also called group life insurance, supplemental life insurance through an employer is only available if you also get basic life coverage. It is typically capped to equal the underlying basic life coverage.

Federal Employees

Federal employees can purchase optional supplemental insurance after they are automatically enrolled in basic life insurance. These employees can buy optional insurance with coverage amounts up to five times their annual base pay, rounded to the nearest $1,000. Federal employees can also purchase supplemental spouse life insurance and supplemental child life insurance, with up to $25,000 coverage for the spouse and $12,500 per eligible dependent.

Postal Employees

Postal employees get the same insurance options as federal employees. However, postal employees also get free basic life insurance coverage. For postal and other federal employees, the government pays an extra benefit to the beneficiary if the insured dies before age 45, even if they don't opt-in to optional insurance coverage.

Supplemental life insurance enhances the financial safety net for individuals and their families, offering various options to address specific coverage needs and life circumstances. The most common types of supplemental life insurance are:

Each type of supplemental life insurance caters to different needs and offers varying benefits, making it important to assess your financial situation and coverage goals when considering these options.

Supplemental life insurance rates differ for each group, just like for each individual getting life insurance. However, basic life insurance is usually cheap or may even be free for employees. Individual term life rates cost more, averaging $19 per month for women and $23 per month for men for a 10-year term with $250,000 in coverage. Some of the factors that could impact the cost of your supplemental coverage include:

Supplemental life insurance presents both advantages and potential drawbacks. Evaluating these can guide you in making informed decisions that align with your financial goals and provide clarity on the value and limitations of additional coverage.

Supplemental employer life insurance is not for everyone but can be a great add-on to increase coverage if basic life isn’t enough. If any of the below criteria apply to you, you could benefit from supplemental coverage:

Most life insurance professionals recommend multiplying your annual base salary by 10 as an easy way to calculate how much life insurance coverage you need. Depending on your needs and circumstances, that might not be enough, or it could be too much coverage. Consider three other ways to compute your life insurance needs:

• Ten times your salary plus college expenses: This method suggests adding projected college costs for your children to the baseline of ten times your annual salary. It's a tailored approach for those prioritizing educational expenses in their coverage. You can start by adding the average cost of college tuition and fees to 10 years of your salary.

• DIME formula: The DIME (Debt, Income, Mortgage, Education) formula provides a comprehensive look at your financial obligations. By adding any outstanding debts, income replacement needs, mortgage balance and future educational costs, you can get a more personalized coverage amount.

• Human life value: This approach assigns a monetary value to your economic contribution to your family that considers your current income, potential future earnings and financial impact if you were to pass away unexpectedly. It's a holistic method that underscores the value of your role within the family's finances.

Supplemental life insurance doesn’t have to be confusing or complicated. Here are some of the most commonly asked questions about voluntary life insurance coverage.