What is Supplemental Additional Life Insurance

Fringe Benefits

With the ever increasing demand to recruit and retain the most qualified employees, employers are forever looking for ways to entice such employees to their businesses. They have discovered monetary rewards have limitations when it comes to retaining qualified employees, so they have turned to other fringe benefits to catch the interest of those potential employees.
With salaries being equal, these fringe benefits are being used to encourage the potential employee to seriously consider accepting employment and then remaining loyal to the new employer.

Most of the fringe benefits being offered come at no out of pocket expense to employees. They fulfill an integral position in the health of a company. Here are a few found in many employee benefit packages: health insurance, vision and dental insurance, short and long-term disability insurance, life insurance, paid time off for vacations, sick days, personal days, bereavement or funeral days, paid maternity leave and time off to vote. Some companies are even experimenting with free lunches, free beer, free gym memberships, and even one to three days off for bereavement if you lose a pet, and the option to work remotely if you need more time–all paid for.

These fringe benefits have a shared cost to employees and employers: 401(k) and other retirement plans. The employer agrees to set aside a portion of employee salary on a pre-taxed dollar basis and then agrees to match that contribution with a contribution of its own, also on a pre-taxed basis.

What is the cost

The supplemental additional life insurance benefit under the group benefit plan is a benefit the employees pay on their own. The employer has agreed to allow employees to purchase additional life insurance above and beyond the amount paid for by the employer under the existing group benefit plan. As a benefit to the employee, the employer deducts the premium from the employee’s payroll for the supplemental additional life insurance and submits it to the insurance company providing coverage.

Benefit to employee

This ability to purchase the additional life insurance can benefit the employee in several ways:
Group life insurance policies normally do not require any medical requirements so an employee who may not be able to purchase life insurance on the open market due to pre-existing conditions, avocations, ailments, or obesity can obtain coverage for certain amounts.

Rates for group life insurance are actuarially established by issuing life insurance companies based on the occupational mix and are weighted for age of the group, general health of the group, and size of the group. If you happen to be on the older side of the group, your premium may be lower than you would have to pay on your own. If you are in a higher risk occupation, you also could receive some benefit if the group has a larger percentage of its employees in low risk occupations.

Convenience of payroll deductions where the premium is automatically deducted prior to the employee receiving monthly payroll–one less bill to have to remember to pay every month, eliminating possibility of forgetting to make the payment.

Flexibility in additional amounts to be insured. The underlying life insurance coverage is normally a percent of annual income, whereas the supplemental life insurance benefit allows employees to purchase increments over that percentage. It is common for an employee to add two to four times that amount–answering a few underwriting questions sans medical–and perhaps even more, with medical underwriting being required. This is an incentive to employees who again may not be able to purchase individual plans of insurance.

Downsides

There are two major downsides to purchasing supplemental additional life insurance through group health benefit plans:

It may be more expensive for younger able-bodied employees since they are lumped in with older less medically acceptable employees. The insurance company recognizes this fact; so in order to keep the younger insured from opting out of group coverage, it requires a certain employee participant percentage to be maintained in order for coverage to be continued. This keeps the insurance company from being adversely affected by having just the higher risk participants insured.

Most critically, supplemental additional life insurance is not portable. Once you leave the employment of a business offering the coverage, you lose the death benefit associated with that coverage. It is also possible if you are not actively at work, which is a requirement of the benefit on the day you die, the policy may not pay since you were not deemed to be actively employed. This might seem to be picky, but it would be wise if you have spent the money to purchase supplemental additional life insurance to understand the details of the benefit.

Summing it up

It is a wonderful time to be working for a company which recognizes the value of its employees. It is also a time to acknowledge that the employer’s commitment to financially compensate its employees goes well beyond payroll expenses.

It is wise for both employers and employees to recognize their dependence on each other to make the enterprise they are involved with profitable. One should not take advantage of the other. It is just smart business sense to find the proper balance to reimburse the individuals who create the jobs and those who make the dreams come true. Hopefully, the golden goose can continue to lay the golden egg.