What Is Supplemental Life Insurance?

Supplemental life insurance provides extra insurance to close gaps in your regular insurance coverage. Most supplemental life insurance is provided through employers, but you can buy it from private insurance companies, too. It is typically cheaper than standard policies but is more limited.

Life Insurance Coverage You Can Count On

Answer a few quick questions to get your free quote. You may qualify for up to $2M in coverage with no medical exams required.
Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By
    Savannah Pittle
    Headshot of Savannah Pittle, senior editor for Annuity.org

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

    Read More
  • Financially Reviewed By
    Stephen Kates, CFP®
    Stephen Kates, CFP®

    Stephen Kates, CFP®

    Principal Financial Analyst for Annuity.org

    Stephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for Annuity.org, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.

    Read More
  • Updated: January 24, 2024
  • 6 min read time
  • This page features 6 Cited Research Articles

Key Takeaways

  • More than half of all supplemental life insurance policies in the United States are provided through employers — often free of charge as part of a benefits package.
  • Most policies provided through employers are not portable — meaning your coverage ends when you leave your job.
  • You can buy supplemental life insurance through private insurers — typically at a lower cost than regular insurance.
  • You should consider buying supplemental life insurance if your regular life insurance leaves gaps in benefits or coverage that a supplemental policy can close.

Who Needs Supplemental Insurance?

Most supplemental life insurance is provided through employers — as a benefit and to promote employee financial wellness.

But you may want to consider additional supplemental insurance if you don’t have enough life insurance through your job or through a private life insurance policy you purchased.

Advantages of Supplemental Life Insurance

  • It can fill in coverage gaps you may have with too little coverage from other life insurance policies.
  • Supplemental life is easier to qualify for — typically no need for a medical exam.
  • Employer-based plans can be paid for through payroll deduction.
  • It tends to have lower premiums than comparable, individual life policies.

There are several things to consider if buying supplemental life insurance — through your job or an individual insurer.

Reasons To Consider Supplemental Life Insurance

  • You don’t have enough coverage — a large enough death benefit — through your current life insurance policy.
  • You want additional coverage — such as for a spouse or child — that your current life insurance policy does not provide.
  • You want a portable life insurance policy you can take with you if you leave your current job.
  • You want extra coverage — such as funeral and burial fees or other specific costs.

Supplemental life insurance can also be a good option if your health or other conditions make it difficult to get enough coverage through other plans.

Get a free quote in just minutes

You may qualify for up to $2M in coverage with no medical exams required.
*We may be compensated if you click this ad.

How Much Supplemental Life Insurance Should You Buy?

You should base your coverage on how much of a financial burden your family would face if something happened to you. Your total life insurance coverage should cover that burden. If your current coverage doesn’t cover the cost — supplemental life insurance can fill in the gap.

Things to Consider When Calculating the Right Amount of Life Insurance

  • Consider the number of children and their total child-rearing expenses, including the costs of day-care through college tuition payments.
  • How much will future mortgage payments, rent or other housing costs for your family cost?
  • How much money do you want to leave to help with your spouse’s retirement?
  • What will the financial impact on your family be if they no longer have your income? Remember to consider how family spending may adjust to your increased income in the future.

There are several different formulas financial advisors use to determine how much insurance coverage is right for people.

Some suggest multiplying your income by 10 — then adding an extra $100,000 for each child — to get an idea of how much total coverage you need from insurance. Others may suggest six to 10 times your income.

Whatever formula you use, supplemental life insurance can fill in the gap between how much coverage you currently have and how much you need.

Buying Supplemental Life Insurance

There are several types of supplemental life insurance and different ways to buy it. While most people purchase it through their employer, you can also buy supplemental life insurance through private insurers.

Types of Supplemental Insurance

Supplemental Employee Life Insurance
This is the most common type of supplemental life insurance. It’s the type of extra life insurance coverage you buy at work. It’s generally cheaper than individual life insurance but you may lose coverage if you leave your job.
Supplemental Accidental Death and Dismemberment Insurance
Supplemental accidental death and dismemberment insurance pays out if you are seriously injured or killed in an accident. This is typically a separate policy in addition to your supplemental life insurance.
Supplemental Spouse Life Insurance
Supplemental spouse life insurance covers the life of your spouse — or in some cases, your domestic partner.
Supplemental Child Life Insurance
Supplemental child life insurance covers the life of your child or other eligible dependents.

Buying Supplemental Life Insurance Through Work

Buying supplemental life insurance through work can be convenient and inexpensive — if your employer offers it. More than half do, but it still may not be enough supplemental coverage for your needs.

Buying a policy through work means joining a group policy. In some cases, your employer may base the amount of coverage you receive on your salary.

Typically, when you leave your job, you no longer have coverage through your employer-based life insurance.

Buying Supplemental Life Insurance Through Private Insurers

You may have more coverage options if you purchase supplemental life insurance through a private insurer — and you can keep your coverage if you leave your job.

Private Insurance Options for Supplemental Life Coverage

This is temporary life insurance that you buy for a specific number of years — 10, 20 or 30, for example — and the supplemental insurance will pay out to your beneficiaries if you die within that time. If you outlive the term, the insurance expires and there is no payout.
Permanent supplemental life insurance stays in effect for as long as you’re alive — and continue paying premiums.
Spouse and Child
Depending on the type of supplemental life insurance you buy, you may be able to add coverage for your spouse or dependents. This typically raises your premiums.

Supplemental Life Insurance Costs and Taxes

The cost of supplemental life insurance — like almost all forms of life insurance — varies based on your age and health. You typically pay less if you are younger and are a non-smoker.

If you have supplemental life coverage through your job, your employer may pick up the cost as part of your benefits package.

Cost can also depend on your employer. Your employer will buy group coverage through an insurance company. The company will set the price based on several demographic factors — including past claims and particular policy components your employer requested.

Supplemental Life Insurance Taxes

Typically, you don’t have to pay income taxes on up to $50,000 coverage if your employer pays your premiums for supplemental life insurance.

But you will have to pay income taxes on any coverage over that $50,000 threshold. This means the extra cost of premiums for more coverage is counted as income.

How much you’d have to pay is based on the IRS Premium Table. The additional coverage would also be subject to Social Security and Medicare taxes.

IRS Premium Table: Cost per $1,000 Coverage for One Month

Age Cost Per Month
Under 25 $0.05
25-29 $0.06
30-34 $0.08
35-39 $0.09
40-44 $0.10
45-49 $0.15
50-54 $0.23
55-59 $0.43
60-64 $0.66
65-69 $1.27
70 & older $2.06
Source: U.S. Internal Revenue Service

Frequently Asked Questions About Supplemental Life Insurance

These are some of the most common questions people ask about supplemental life insurance.

What’s the difference between basic and supplemental life insurance?

Supplemental life insurance is typically less expensive than individual life insurance you might buy as your primary life insurance. Most people buy it through their job. Its primary purpose is to cover gaps in your other life insurance coverage.

Can you cash out your supplemental life insurance?

Most supplemental life insurance plans offered through your job provide term coverage. This means it is only in effect for a limited period of time — typically until you leave the job — and does not offer a cash value that you can cash out at a later time.

But you may be able to purchase a permanent supplement life policy — through a private insurer if your employer doesn’t offer one. This will allow you to build up a cash value in the policy which you can later borrow against or cash out.

What happens to supplemental life insurance when you leave a job?

If you have supplemental life insurance through your employer, it typically ends when you leave the job — and you cannot transfer it to another employer or cash out the plan.

However, if you purchase a supplemental life policy through a private insurer, you can take it with you when you change or leave jobs.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: January 24, 2024