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Supplemental Group Life Insurance

Jan 23, 2024 | Asset Protection

Most companies offer their employees a range of benefits, including life insurance.  Many companies offer life insurance benefits at no cost to you, but the coverage level is often limited to relatively low amounts.  If you need more life insurance, you might have the ability to buy supplemental coverage through the company’s plan.  Here’s what you should know about supplemental group life insurance relative to your insurance needs.

What is Group Life Insurance?

Group life insurance is a benefit offered by employers that provides life insurance coverage to their employees. The policy works similarly to term life insurance, in which it provides you with life insurance coverage over a period of time, generally for as long as you are an employee of the company. If you pass away during the time you are insured, your beneficiaries will receive the stated death benefit. The death benefit of a basic policy typically ranges from $25,000 to 1x or even 2x your salary. Often this benefit is provided to you at a very low cost or for free.

Supplemental Group Life Insurance

While basic group life insurance coverage is a distinct benefit, often the provided amount is not sufficient to protect your family. Hence, more life insurance coverage might be needed. One way to buy additional life insurance is through supplemental group coverage. This type of policy allows you to buy additional insurance, usually in increments of your salary (i.e., 2x, 3x, 4x etc.).

Things to Know About Supplemental Coverage

Below is a list of key things to know about supplemental coverage.

  • The employee typically pays the full amount of the premium.
  • The premium paying process is through payroll deductions on your paystub, which makes the process easy.
  • There are generally coverage limits.
  • Coverage limits are often below the level of insurance needed to protect a family with young children.
  • Not all employees may be eligible.
  • You may need to go through underwriting or additional medical questions.
    • This differs from basic group life coverage which is typically a guaranteed issue.
    • If you have an underlying medical condition, group coverage may be more attainable than other outside options.
  • In some circumstances, supplemental group life coverage is cheaper than other outside insurance options. However, it is often more expensive than obtaining an individual policy on the open market.
    • It is important to consider outside options if there is an additional life insurance need.
  • The additional premium paid for supplemental coverage differs by plan. Hence, there is no set premium for benefit amounts across different employers.
  • Some companies allow you to purchase supplemental coverage for your spouse or other family members.
  • In most instances, you lose your supplemental coverage when you terminate employment, either voluntarily or involuntarily.

The last point noted above can make supplemental life insurance coverage a risky way to protect yourself and your family.  If you leave your employer and lose your supplemental life insurance, you will need to buy new replacement insurance.  Replacing insurance becomes more expensive as you age or have any medical problems.  It can also become unattainable with certain medical conditions.

Alternatives to Supplemental Group Life Insurance

Your employer’s group insurance plan is not the only option available to you.  Everyone can apply for life insurance on a private basis.  You can work with an insurance agent who can help you apply and answer questions, or you can apply directly with a company.

The primary benefit of buying life insurance outside of your employer’s plan is that you are the owner of the policy, meaning you are in control and can keep the policy regardless of where you are employed.  Additionally, the premiums might be lower with an individually-owned policy.

Should You Have Supplemental Group Life Insurance?

Ultimately, the question of whether you should have supplemental coverage depends on everyone’s own unique circumstance. A few of the most important questions to ask are:

  • How much insurance do I need? We discuss this in a separate article named “How Much Life Insurance Do I Need, and What Kind?”.
    • As mentioned, most of the time, group life insurance does not provide a sufficient level of life insurance coverage.
  • Is supplemental group life insurance the best or only way to obtain the additional amount of coverage? This might be the case if you have a medical condition that would otherwise prevent you from buying life insurance.
  • Is an individual life insurance policy a better option? An individual policy might be cheaper and allow you to keep the policy if you leave your job.

SageVest proudly serves as a fee-only advisor.  We advise clients on the totality of their financial needs, including insurance, but we don’t sell insurance.  This structure gives our clients security in knowing that any insurance recommendations we offer are in their best interest.  Please contact us to learn more about our services to secure your financial needs and goals.

Prepared by SageVest Wealth Management. Copyright .
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