Employee supplemental life versus term life: Which is right for you?
Learn the differences between employee supplemental life insurance and term life insurance to make the best decision for your family's life insurance needs.
For many employees, open enrollment season is right around the corner. If you're lucky enough to have employer-sponsored benefits, you likely have the option to get life insurance. But is this group coverage sufficient to meet the needs of you and your family?
Before you make your selections during open enrollment, here are a few things to remember.
What is employer-provided supplemental life insurance?
Most employers offer one of several types of life insurance policies, including basic group life insurance coverage and supplemental employee life insurance.
Group life insurance is what it sounds like — life insurance through work at a discounted rate. Sometimes it's even free, provided as part of your benefits package. These policies usually offer a death benefit of your yearly salary times a set number, and you're generally automatically enrolled.
Supplemental coverage is different. This type of policy is usually offered as additional coverage to your employer's group life insurance coverage up to a specific limit. It adds a layer of protection to your employer-sponsored coverage, allowing you to customize coverage to suit your needs. These needs may include paying off your mortgage, covering your dependents' educational expenses or replacing lost income.
Premiums for employee supplemental life insurance are deducted from the employee's paycheck. And they're usually based on the employee's age, gender and desired amount of coverage. Medical exams typically aren't needed for supplemental coverage.
Types of employee supplemental life insurance
There are different types of employee supplemental life insurance, based on who's covered under the policy.
- Voluntary supplemental life insurance is added coverage for yourself.
- Dependent supplemental life insurance covers you, your spouse and your children.
Both options can add financial protection to your loved ones in case of death.
What about term life insurance?
Term life insurance is another popular type of life insurance. Unlike employee supplemental life insurance, you buy term as an individual life insurance policy, separate from your employer.
Term offers level coverage for a specific duration or until a certain age. If you die during that term, your beneficiaries may receive a tax-free benefit.
Premiums for term life insurance are generally lower than other types of life insurance. This can help with cost-effectiveness for individuals who need to cover significant needs. Premiums can either be level or increase gradually every year.
How are employee supplemental and term life insurance different?
There are several differences between employee supplemental life insurance and term life insurance. The following chart can help you understand the differences.
| Employee supplemental life | Term life | |
|---|---|---|
| Coverage duration | It lasts as long as the employee stays with the company and renews each year during open enrollment. | It lasts for a specific term or until a set age when it usually expires. It may be convertible into a permanent policy. |
| Portable | Sometimes you can keep your coverage after you leave your employer. | It is independently owned, regardless of employer. |
| Personalization | This is an add-on to the employer's group life insurance policy with limited personalization. | This offers a personalization of the coverage amount, term length, riders, and benefits. |
| Premiums | Based on the employee's age, gender, and amount of coverage. Payments are deducted from the employee's paycheck. | Based on age, health, coverage amount, and term length. Payments are made to the insurance provider. |
How to decide between employee supplemental and term life insurance
Choosing between employee supplemental and term life insurance depends on your personal needs.
Consider the following factors to help narrow your decision.
- Coverage needs: Check your financial situation, including debts, dependents and long-term plans. How much coverage do you need to protect your loved ones and meet your financial obligations? In asking yourself these questions, you may find that more than basic group life insurance is required. In this case, you'll want to consider more life insurance to bridge the gap.
- Budget: How much can you afford to spend on premiums? Employee supplemental life insurance premiums are often standardized, and affordability can vary. Comparing costs with an independently owned term policy is an important long-term decision.
- Portability: Can you take your employee supplemental life policy with you if you switch employers? If you expect to change employers, portability is an important feature to consider. Term life insurance allows you to be protected no matter your employment status.
- Personalization: Consider the level of personalization you want. Employee supplemental life insurance typically has limited options for coverage and features, while term life insurance offers a broad range of coverage options, including riders and benefits, to meet your needs.
- Long-term coverage needs: If it's renewed and you stay employed, employee supplemental life insurance can stay in force. Term life insurance is set coverage for a specific duration or age. It's important to compare these options with the long term needs you want to protect.
- Health status: Employee supplemental life insurance is often offered as a group policy, which may not require underwriting. But term life insurance usually requires a medical exam, and any health issues, or lack thereof, will affect your premium. Understanding the potential effects of health is essential to making a long-term life insurance decision.
You may benefit from having both term life insurance and employee supplemental life insurance. It's not necessary to choose just one. That's why evaluating your needs and priorities is essential before deciding.