Should You Invest in Supplemental Life Insurance?

Many employers that offer group life insurance policies also offer supplemental life insurance to their employees, but should you buy it?


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Life insurance is incredibly popular among workers whose employers offer that benefit. Per the U.S. Bureau of Labor Statistics, for the 60% of companies that offer life insurance benefits, a whopping 98% of employees enroll. That enrollment rate holds fairly steady across income levels, but the availability of life insurance disproportionately skews to higher earners with only 28% of the bottom quarter of wage payers offering insurance as compared to over 80% of the highest quarter. So, if you’re working and your employer offers life insurance, you’re likely receiving it. But are you paying for supplemental life insurance?

Supplemental life insurance is exactly what it sounds like; it’s additional coverage in excess of the standard policy that your company offers. Typically, employers’ group life insurance policies offer benefits of 1-2 times an employee’s annual wage. That level of coverage will generally be sufficient to take care of any final expenses for most workers and potentially settle outstanding debts or pay for some or all of the end-of-life medical expenses that may have been incurred. What it won’t do is provide a financial windfall for surviving spouses or family members.

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That’s where supplemental life insurance comes in. With supplemental life insurance coverage, you may be able to buy affordable term-life insurance to boost your coverage to 3-5 times your annual wages. With that level of coverage, surviving family members may be able to pay off a mortgage or finance higher education for children.

When Should You Buy Supplemental Life Insurance?

If you’re single, or have no financial obligations that will outlive you, the group life policy is probably adequate to cover your final expenses and prevent a financial headache for whichever family members are taking care of funeral expenses. However, supplemental life insurance may be a useful investment if you have other financial or personal obligations such as:

A non-working spouse or partner – If you’re in a relationship in which you’re the primary breadwinner, supplemental life insurance provides a financial cushion to your surviving partner. This cushion could be drawn down to supplement wages they earn, pay for education or licensing that would enable them to earn more money, or cover their expenses while they develop the skills necessary to enter or reenter the workforce.

Dependent children – If you have young children and you’re planning on helping finance their education, supplemental life insurance can make that path forward much easier for your family. Whether your partner works or not, education is incredibly expensive and just getting more so. Proceeds from a supplemental life insurance policy could provide immediate help or be invested for future needs.

Approaching retirement – If you’re in the last few years of your career, and retirement is on the horizon, added insurance could replace the last few years of your income that would set your spouse or partner up for comfort in retirement. That being said, if you do not currently have supplemental life insurance, you may want to do some calculations before enrolling. If you already have retirement savings, the savings needed for one retiree will be lower than the savings needed for two retirees and paying for added insurance may not be necessary.

If you’re planning to add insurance, consider shopping around in the marketplace rather than just assuming that your employer will offer the best rates. Especially if you’re young and healthy. If you are, you may be able to save on your premiums. If you’re older or in poor health, however, your employer may well be the best option.

Is supplemental life insurance through your employer an important part of your financial planning?

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