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Employee Supplemental vs. Term Life Insurance Coverage - Learn The Difference

By the Bestow Team·August 18, 2021·7 Minute Read

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Married? Got kids? If you’ve got someone (or a few someones) depending on you for financial support, it might be time to consider a life insurance policy. It’s nobody’s favorite thing to talk about, but it’s important. If you were to pass away, a life insurance payout could help provide for your loved ones’ future needs. It could reduce the financial burden of funeral and burial costs, pay off jointly-held debt, and help replace lost income. 

Choosing the best life insurance policy for you from among the coverage options can feel daunting, and you may already have access to a supplemental life insurance policy at a reasonable price through your employer. If you do, congrats. That’s a great benefit. But even if you have employer life coverage, you still might want to look into applying for your own life insurance policy. That’s because supplemental insurance through your employer is typically not portable. If you change jobs, you could be left without life insurance.

The good news is it may be cheaper than you think to get a term life insurance policy on your own. With term coverage, the policy is yours so long as you’re approved and you make the premium payments on time. You might rest a little easier knowing that if you passed away while the policy is in force, a death benefit payout could help offer your loved ones the financial support they need during a tough time.

Key Differences Between Supplemental Life Insurance And Term Life Insurance

The main differentiator between supplemental life insurance vs. term is supplemental life insurance may be available through your employer, while term life insurance comes from private insurers. It’s important to note that in most cases, supplemental insurance coverage usually ends if you stop working for your current employer.

A supplemental life insurance policy is called that because it’s meant to be an affordable, easy option to get more coverage — or a “supplement” to existing coverage. 

If an employer benefit is offered, consider taking it! But you might not want to rely on that as your only source of life insurance coverage.

Here are some high-level differences to help you understand why. 

Supplemental Life Insurance

  • Offered by human resources through an employer
  • Some coverage limitations
  • Coverage usually ends when the job does

Term Life Insurance

  • Flexible coverage options
  • Some require a medical exam
  • Larger range of coverage amount
  • Keep your coverage even if you don’t keep your job

What Is Supplemental Life Insurance?

A supplemental life insurance plan is a benefit that some companies offer employees. Policy owners rarely have to complete a medical exam since the insurance company decides the amount of coverage and how much you’ll pay for a monthly premium; they charge per thousand dollars of coverage for the entire company.

Here’s what you need to know about supplemental life insurance:

  • You may have to wait until your company’s open enrollment period to get supplemental life insurance. 
  • If you decide to buy supplemental coverage, your life insurance policy remains in place so long as you work for the company.
  • Your premiums come directly out of your spending account but are not tax-deductible.
  • You often aren’t able to take a supplemental life insurance policy when you leave the company. 

Other Types of Supplemental Life Insurance

  • Accidental death and dismemberment (AD&D insurance): This policy pays only if the covered person dies because of an accident. The policy also provides maximum coverage for loss of eyesight, loss of a limb, and loss of hearing.
  • Accidental death and personal loss: This policy covers various accident-related injuries. For example, you’ll receive a payout if you are in a coma or lose your hearing for more than thirty days because of a work-related accident. 
  • Burial insurance: This policy covers the cost of burying the insured person.
  • Dependent child insurance: This policy provides a death benefit if your child dies while the policy is in force.

What Is Term Life Insurance?

Term life insurance provides a death benefit if the insured person dies during the term of the policy. The “term” refers to the total duration of the coverage. For example, you can find 10, 20, or even 30-year basic term life insurance policies. As for the monthly premium, it is typically more affordable when compared to whole or universal life insurance. The insured decides who gets the payout, how long they want coverage, and how much coverage they need.

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Different Types of Term Life Insurance

  • Yearly renewable term life insurance: Annual renewable term insurance (ART) is guaranteed renewable to add insurance for a certain number of years without requiring another medical exam.
  • Five-year renewable term life insurance: Premiums stay the same for five years but may change depending on the insured person’s health status.
  • Group term life insurance: There’s no health exam with most group life insurance policies. Group life insurance coverage ends when the insured person leaves the company.
  • Return of premium term life insurance: If the insured person is alive at the end of the term and the policy is in force, the company returns a portion of the premiums to the policy owner. 
  • Term life insurance (varies from ten to thirty years): The policy owner chooses the length of time — the term — they want coverage. If the insured person dies during that term, the policy pays a set amount as a death benefit. 

When Is A Supplemental Life Insurance Policy A Good Decision?

When You Need More Than Your Basic Life Insurance Policy

If you have a health condition or history of health problems and can’t get a term life insurance policy, you may benefit from signing up for supplemental life insurance through your company. Before you do, ask if they require a health exam or if you’ll have to fill out a statement about your health history. 

Keep in mind that the free life insurance an employer offers in an employee benefits package or imputed income is sometimes not enough, even if you have a generous annual salary. A basic supplemental life insurance policy may not provide a large enough maximum coverage payout to meet your family’s needs.

If you can qualify for a term life insurance policy, it might be a stronger option. 

When You Need Portable Life Insurance Coverage

Portability is a crucial part of life insurance. It’s no fun to lose out on your coverage or coverage amount just because you change jobs. Of course, everyone’s different. Here are some examples of circumstances where you might really benefit from portable coverage:

Term life insurance through a private insurer is popular with young people who want to ease the financial burden of joint debt and make it easier for their loved ones to pay for a funeral and burial if they die unexpectedly.

Young families who depend on a parent or caregiver for financial support — and those who understand how difficult (and expensive) it would be to hire someone to handle everything a stay-at-home parent does — often value term life insurance as an inexpensive financial safety net. 

Older adults may purchase supplemental life insurance coverage because it costs less than they’d pay for a term policy. The rates for buying term life insurance depend partially on the insured person’s age and health status. A supplemental policy may provide an inexpensive way for an older person to provide the surviving spouse or grown children with a payout large enough to pay off the mortgage and handle end-of-life medical expenses.

If you have life insurance separate from your employer’s benefits package, you don’t have to worry about getting a new policy when you change jobs. Plus, not all employers offer life insurance as part of their benefits package, so it's not necessarily something you can count on.

When You Want Additional Coverage

You may want additional life insurance for specific situations, like accidental death or work-related injuries. Supplemental coverage may also provide coverage for final expenses with a burial insurance policy.

If your employer offers free individual life insurance with no medical exam, it’s wise to sign up for supplemental. However, since you can’t take the coverage with you if you leave the company, it’s a good idea to consider getting a term life insurance policy separate from your employer. A term life insurance policy provides a guaranteed issue payout whether or not your death is accident-related.

When Is A Term Life Insurance Policy A Good Decision?

When A Whole Life Insurance Policy Is Too Expensive

Term life coverage often comes with a more affordable monthly premium than other types of life policies, like permanent life insurance. You can choose how long you want coverage, how much money you’d like your loved ones to receive if you die while the policy is in force, and who receives the health savings payout.

See more differences between term life insurance and whole life insurance

If You Only Need Life Insurance For A Certain Period Of Time

Voluntary term life insurance lets you choose your coverage period when you’rebuying life insurance, often in 10-, 20-, or 30-year terms. Since it’s not a reflection of your annual salary, you can select how much coverage you need. And with voluntary life insurance, you choose who will get the death benefit if you die during the term period.

If You Can Make More Fruitful Investments

An affordable term life insurance policy frees up money to invest on your own flexible spending account. Plus, loved ones – including your dependent children and domestic partner – can receive the death benefit if you die while the policy is in force. You can also leave your investment account to them to provide even more financial support.

Choosing Your Life Insurance Policy

If your employer offers a supplemental employee life insurance policy, you may want to look into the pros and cons based on your particular situation. Guaranteed approval and low premiums can make signing up through your employer a good option. 

Individual term life insurance can also be a good option and is often less expensive than many think.

Term life insurance remains in force during the entire term of the policy, so long as you make your premium payments as agreed. 

With Bestow, you can get a free quote in seconds, and apply for coverage online in minutes. No piles of paperwork. No stress. Really. It’s that easy. There’s no medical exam whatsoever.

Rates, especially for young applicants, can be surprisingly affordable.