What Is Supplemental Life Insurance?

Lynda Taylor is an assistant director of Insurance Solutions Development at Northwestern Mutual.

Life insurance is a key part of planning for your family's future, and you want to make sure you have enough coverage. Getting enough to protect your family’s cash flow when you’re gone can mean having more than one insurance policy. Technically, supplemental life insurance is any policy you buy to add to, or supplement, your existing coverage. But it typically means life insurance you purchase that goes beyond the policy you receive as an employee benefit.

Many employers offer insurance as part of their employee benefits package and pay the bill, or premium. These group life insurance policies usually provide a death benefit equal to one or two years’ salary. While it’s a generous start, it may not be enough to cover your loved ones’ needs after you pass away.

So, employers may also offer supplemental coverage that you pay for. Or you might buy a private life insurance policy outside of what the company offers.

Here you’ll learn why you might want supplemental insurance, which types are available and the different ways you can get coverage.

Reasons to purchase supplemental life insurance

You might opt to buy supplemental life insurance for several reasons. First, the policy your job provides might not be large enough. If you have family members who’d be in a tough financial situation without you, just one or two years’ worth of your salary may not be enough to support them.

You may also opt for supplemental coverage when life changes increase your need for coverage. If you’re getting married or moving in together, having a baby or buying a house, then you may be looking for more coverage.

Remember that your work isn’t the only source of additional life insurance. You may find that buying a private individual life insurance policy may be the better option.

Common types of supplemental life insurance

Group term life insurance: The basic policy that your company provides at no cost is typically group term life insurance, which means the policy pays a death benefit only if you die in the specified term—which might be 10 years, 20 years or another time frame.

Your employer may give you the option to purchase additional coverage, usually for the same term but with a larger death benefit. The premiums for the supplemental life insurance may be discounted because they are being purchased through your company, but you’d have to pay any additional premium costs out of your own pocket.

Group whole life insurance: Some employers may also offer group whole life insurance, which means the coverage lasts for your entire life, as long as the premiums are paid. When an employer offers group whole life insurance, the supplemental life insurance offered is usually also whole life insurance.

It's important to remember that any coverage you get for free from your employer will end when you leave that employer. But when you purchase supplemental insurance through your employer’s plan out of your own pocket, you can usually take it with you, but the premium may be higher.

Life insurance for a spouse or child: Supplemental policies may allow you to purchase extra coverage on your spouse or dependents. It may seem surprising to get life insurance for children, but it can be a solid financial step. Just keep in mind that you might have to buy coverage for yourself to qualify for coverage on the family member.

Accidental death and dismemberment: AD&D insurance is designed to pay a benefit if you die or become badly hurt in a serious accident—specifically the loss of a limb, paralysis or loss of sight. Some employers offer it as an employee benefit. You can also get a policy on your own or sometimes as an extra add-on or insurance “rider”.

AD&D insurance can be a good addition to a life insurance policy because accidents don’t leave the family time to prepare for a sudden loss of income.

Final expense insurance: Sometimes called burial insurance, final expense insurance is usually meant to cover funeral and burial costs and (sometimes) end-of-life medical bills. It typically has a low death benefit, often less than $10,000.

Private life insurance vs. supplemental life insurance from an employer

While it may be easier to buy a supplemental life insurance policy through your employer, there are times when buying an individual life insurance policy can offer advantages. Here are some pros and cons of both.

Advantages of a private life insurance policy

• Coverage tailored to your needs: Unlike employer-sponsored coverage, a private policy isn’t limited to the coverage amounts specified by your employer, and you can choose whether a term policy or a permanent life insurance policy is better for your situation.
• Portability: An employer-paid policy ends when you leave the company; you can typically convert coverage you purchase on your own to a private policy, but your cost may go up. A private policy will remain in effect for the length of your policy as long as you have paid your premiums on time.
• Price: If you're healthy, you may qualify for lower premiums with a private policy. Group policies are offered to all employees at the same rate, typically regardless of health. With private policies, those in good health typically pay less in premiums than people with serious health conditions.
• Timing: You can typically purchase supplemental insurance from your employer only when you’re first hired, during the time period called “open enrollment” or surrounding a milestone like marriage or the birth of a child. But you can buy a private life insurance policy throughout the year.

Advantages of an employer-sponsored policy

• No comparison-shopping: If you feel overwhelmed weighing the pros and cons of different types of private life insurance, choosing a supplemental life insurance policy through your employer makes your decision easier, since you'll likely have only one choice of provider and fewer options for the size of your coverage.
• Skip the medical exam: Adding on to your policy through your employer might allow you to skip the medical exam.
• Potential for lower premiums: If you have a health condition that would make you riskier to insure, your life insurance premiums would likely be lower with an employer-sponsored policy. A private insurer who evaluates your health before offering you coverage may charge you a higher premium to reflect the risk of providing you with life insurance.
• Fewer bills: You might be able to make life easier by keeping everything on a single bill or even paying through payroll deduction.

How much supplemental life insurance should you buy?

A life insurance policy is an important component of your financial plan. You'll want enough coverage to make sure that your dependents won't suffer financial hardship when you die—plus permanent life insurance, such as whole life insurance, offers a cash value component that you may want to use while you’re still alive.¹

When thinking about how much life insurance you need, consider this: If you were to pass away, would your current coverage be able to take care of your kids until they turn 18 or 21? If your spouse is unable to work, how long would your company policy realistically provide for them?

Calculating what expenses you’re trying to cover can help you determine how much coverage you actually need. A life insurance calculator can help give you a general idea, and then you’ll probably want to talk it over with your Northwestern Mutual financial advisor.

When supplemental life insurance makes sense

Your Northwestern Mutual financial advisor can help identify your life insurance needs. Together, you can tailor a policy to support your family’s long-term goals.

Your advisor can also show you how your insurance complements your other financial tools. As your co-pilot, your advisor can help make sure you’re poised to protect and grow your money.