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Do I Need Supplemental Life Insurance?

Having group life insurance, or life insurance through your employer, certainly has its benefits. It’s easily accessible and often cheap or free. However, sometimes your group insurance isn’t enough for you. Supplemental life insurance helps you top up the insurance you get through your employer. That’s when you will want to consider supplemental life insurance.

Is the insurance I get from my employer enough?

Getting life insurance coverage as part of your benefits package is a great thing. Like health insurance, life insurance is cheaper when purchased as part of a group. There’s strength in numbers! Company-sponsored life insurance has another big advantage: it doesn’t require a medical exam. That makes it a very popular default option for workers who are lucky enough to have it. The thing is, many people who get life insurance from their employer stop there and don’t add to their coverage. This could be fine, or it could be a ‘Big Financial Mistake.’

Let’s assume that you have life insurance through work. If you have no debt and no dependents, you can probably relax. Your employer-based coverage will likely be enough to cover your final expenses and help your loved ones tie up any loose financial ends like medical bills or credit card payments if something happens to you.

But if you have a mortgage and dependents, you might need to think about supplemental life insurance. Buying a supplemental life insurance policy will take your life insurance coverage from so-so to just right. If you’re in the C-Suite, you probably have a generous life insurance policy through your job. But if you’re lower down the career ladder, your policy might be pretty bare bones.

When might I need more life insurance?

Do I Need Supplemental Life Insurance?

SmartAsset can help you figure out how much life insurance you need. Then, it’s up to you to check whether your employer-sponsored coverage meets your needs. Remember the primary functions of life insurance: cover final expenses, pay off your mortgage, replace lost income and pay for your children’s education. If you’re a single parent or the only working spouse, don’t skimp on the life insurance. Likewise, if you have lots of dependents you want to provide for, you may need more than what your company policy provides.

If your job’s coverage isn’t enough for your family’s needs, you have two options. For one, you can ask your employer’s insurance company about buying additional coverage from them. Or you can buy supplemental life insurance on the open market.

Before you go with option number one, consider how much longer you’re likely to stay at your job. If layoffs are looming or if you’re looking around for other opportunities, adding to your employee policy probably won’t be the best idea.

Even if you’re planning on staying at your job for many years, sticking with the same insurance company might not be your best bet. Research the company to make sure it’s solvent and gets good reviews. Then, ask how much it would cost to bump up your coverage. Compare that estimate to quotes from other companies before committing yourself.

Maybe you don’t want to add to your employee insurance with the same company. Then you can shop around for a supplemental life insurance policy elsewhere. Be sure to look for one that will bridge the gap between the coverage you already have and the coverage you really need. This option might well be cheaper than adding to your company plan. Be prepared to take a medical exam, though.

The Takeaway

Do I Need Supplemental Life Insurance?

Supplemental life insurance is designed to supplement, not replace, so don’t surrender your company life insurance. It is free, after all. If you decide to work with a life insurance agent or broker, make sure you explain to him or her that you already have baseline coverage through your job. You shouldn’t have to pay an arm and a leg for supplemental life insurance.

Buying supplemental life insurance is protection against “what ifs.” What if you lose your job and there’s a gap in coverage before you can purchase a new life insurance policy? What would your family do if something happened to you during that gap? What if your health declines, and by the time you get around to shopping for supplemental life insurance you can’t find an affordable policy? Consider these possibilities and what they would mean for your family’s financial future. It doesn’t make you paranoid, it makes you responsible.

If you’re young and healthy, take advantage of that fact to lock in low insurance premiums while you can. If you change jobs in ten years, you won’t have access to the same low premiums you could get today. Term life insurance is generally an affordable way to provide security for your dependents. Why wait to get the coverage you need?

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

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Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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