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What Is Supplemental Life Insurance?

By Kelly Boyer Sagert · March 18, 2022 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is Supplemental Life Insurance?

Supplemental life insurance is typically an additional policy that you can purchase to augment the group life insurance policy obtained via your employer.

These policies can provide extra peace of mind when it comes to protecting your loved ones, but is more insurance always better? You may wonder whether purchasing this kind of policy is a good idea or not worth the added expense. Let’s take a closer look to see whether supplemental life insurance makes sense for your situation.

Understanding Supplemental Life Insurance

Supplemental life insurance is a policy that’s taken out in addition to basic coverage, which might be term or permanent life insurance. You can often purchase a supplemental policy through an employer to augment what they offer as an employee benefit. However, these policies don’t have to be secured through your job. We’ll learn more about that in a minute.

Some of these policies come with a death benefit, a lump sum payment that goes to the beneficiaries you’ve named (the loved ones who will inherit the money). Others may be a different kind of policy; say, one that pays funds that are earmarked to pay for funeral expenses. Depending on the details of your life, these add-ons may be an inexpensive way to boost your protection and sense of security.

Do You Need Supplemental Life Insurance?

Deciding whether or not to buy a supplemental policy is a very personal decision. To help figure out the right answer for your situation, it may help to ask yourself and answer a few questions. Let’s consider some of those here.

Does Your Employer Provide Life Insurance?

Because supplemental insurance is meant to enhance the life insurance policies you already have, check to see if your employer offers basic life insurance as a benefit. If so, how much? Many times, employers offering this insurance will provide a multiple of the employee’s current salary. Other times, it’s significantly less: Among employers offering flat-dollar plans, the median amount of group life insurance provided is only $25,000, according to a U.S.

Bureau of Labor Statistics’ 2021 National Compensation Survey. That’s a figure that many people will find too low to provide the kind of protection they’d like.

If you feel you don’t have enough protection, you may want to check out what is offered that could boost your coverage so that in a worst-case scenario, you know your loved ones will have enough money to cover their expenses. Perhaps your employer offers supplemental policies that will get you to the level of life insurance coverage that you desire. Otherwise, you can also look on the open market for primary or supplemental policies.

Have Your Compared Life Insurance Rates?

If you haven’t compared prices of life insurance rates in a while (or ever), you might want to give it a try. Just because an employer offers life insurance, including supplemental coverage, you may not want to buy it. You may discover that you can get enough life insurance through a standard policy without adding a supplemental one. You can quickly get quotes by calling an insurance agent or, to save even more time, from a website that provides them from multiple companies. When looking at the quote that gives you the best coverage for the most affordable premiums, would you still need a supplemental policy? The answer may be no. There’s a good deal of competition in the marketplace and great deals to be found.

Recommended: How to Buy Life Insurance in 9 Steps

How is Your Health?

First, let’s understand that your health rating is a key factor in buying life insurance on the open market. Rates tend to be lower when you are healthier and younger. Health is typically assessed by the insurer asking you questions about your medical status and possibly having you submit to a brief health exam that involves the collection of blood and urine samples.

That said, plenty of life insurance policies require health exams and/or medical records. That said, many insurers also offer lab-free options that don’t require medical exams (although you’ll almost certainly need to answer health-related questions), and these are often the kind employers offer employees. Typically, these policies are for people who fit into certain age groups and other categories in which they’re likely to be healthy. These lab-free policies are often available for up to $1 million.

Now that you know how this works, understand the implications of your health status. If you have an underlying health condition, are a smoker, or have other qualifying factors, you would probably pay more for life insurance if you went shopping on the open market. In these cases, buying a supplemental policy through your job could be a good way to get coverage at a relatively low cost.

Do You Need Portable Coverage?

Before you sign up for a supplemental policy, consider whether it’s portable. “Portability” is your ability to keep certain benefits if you switch your place of employment or leave the workforce entirely — in this case, your life insurance. If you’re thinking about changing jobs or have reason to believe that you may not work at your current employer for much longer, it’s important to know if your life insurance is portable.

How Much Supplemental Life Insurance Should You Buy?

Many financial experts recommend that you carry 10 to 15 times your annual income in life insurance coverage. Your goal is to choose a policy that would replace the income you would have brought in if you weren’t around to provide for your family. So, if you multiply your salary by those numbers and then subtract what you have in your “regular” life insurance policy, that can be a starting point to determine how much supplemental insurance makes sense.

If you make $50,000 a year and multiply by 10 or 12, that’s $500,000 to $600,000 in coverage you want to purchase. (You might want to bump it up a bit to account for inflation.) So, if you have a term life insurance policy for $500,000, you might decide to get a supplemental policy for $200,000.

Now, factor in your outstanding debt. Life insurance payouts can be used to pay them off, including mortgage loans, car loans, student loans, credit cards, and so forth. So, if you have these debts, you can add their outstanding balances up and consider adding those amounts to your life insurance needs. If, for example, these debts total $300,000, you might bump up the supplement policy example above to $500,000.

Recommended: Life Insurance Definitions

Types of Supplemental Life Insurance

We’ve been focusing on one kind of supplemental insurance, a popular option that lets you increase the overall life insurance coverage you own. This kind of policy would pay a lump-sum death benefit to your beneficiaries. If you purchase this, it’s an employee benefit that can increase the amount of coverage that you own (although you may be responsible for part of all of those premiums albeit at a group rate).

But let’s consider some other possibilities that may be offered:

•   Supplemental spouse life insurance. This kind of insurance provides a death benefit if the employee’s spouse dies and may also be called supplemental family life insurance. Employees may also have the option to buy supplemental child life insurance to cover the death of a child or other dependent who qualifies.

•   Accidental death and dismemberment. This provides coverage to your beneficiaries if you are killed or lose physical function in a type of accident that’s covered in the policy. Depending on the kind of work you do or the pastimes you pursue, this may or may not suit your needs. With AD&D insurance, you could receive a benefit, say, you were to lose your eyesight, your hearing, or limb in an accident. But it won’t provide any benefit if you die due to other medical conditions, which are more likely to occur.

•   Final expenses. These policies pay a small benefit (typically between $5,000 and $35,000) to cover end-of-life expenses, such as funeral and burial costs. Some people like to have this kind of coverage, which means your loved ones wouldn’t have to pay out of pocket for these charges.

How Much Coverage Can You Get Through Work?

It’s worthwhile to evaluate what life insurance options are available through your work. Employers may offer lower rates since they get a group insurance rate. Also, it’s also possible that your employer would subsidize (pay part of) your premiums. It’s typically easier to get insured through a group plan. While you may need to answer medical questions, it’s less likely that you’ll need a medical exam for group insurance.

Group plans through your employer, though, are usually not portable. This means that if you leave that employer, the coverage ends and then you’ll need to shop around again — now at an older (although not necessarily old) age and perhaps with new health conditions. Plus, these plans aren’t as customizable as you might get on your own.

How Much Does Supplemental Life Insurance Cost?

If your employer offers this benefit as part of a group policy, the cost may be minimal, especially if the workplace subsidizes the premiums.

Otherwise, it can make sense to get personalized quotes, given that age, gender, health conditions, amount of the policy, term, and more can impact the price. There are online calculators that can help you do the math and see how the numbers add up.

The Takeaway

So, what is supplemental life insurance? It’s a policy that enhances a person’s primary life insurance policy. It helps to ensure that they have enough financial benefit to protect their loved ones if they weren’t there to provide for them. While supplemental policies through one’s employer can be affordable, they still may not deliver the level of coverage you need. Take a close look at your options, and take advantage of the simple online tools that can help you find the kind of policy you need at the right price.

Protection at a Great Price: Life Insurance from SoFi Powered by Ladder

Part of adult life is financial responsibility: Keeping your dollars and sense in good shape and knowing you are providing for your loved ones. But with that, come some important decisions and planning for the big “what-ifs,” such as “What if you weren’t there to provide for your family? How would the mortgage, tuition, and other expenses be paid?” Term life insurance can help give you the security you crave, beyond what’s offered by your employer’s group life insurance and supplemental options. SoFi and Ladder have partnered to provide a quick, easy, and affordable path to term life insurance from $100,000 to $8 million. Eligible applicants seeking up to $3 million don’t require a medical exam. And because we value your time, we’ll provide you with an instant decision when you apply.


Photo credit: iStock/Kemal Yildirim

Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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