ADDED COVERAGES : Supplemental Life Insurance

ADDED COVERAGES
Group term life insurance contracts often provide additional insurance benefits. Historically, these have been added through the use of riders, but many insurers now incorporate some or all of these benefits into their basic term insurance contracts. The most common types of these benefits, which are also forms of group term insurance, are
(1) supplemental life insurance,
(2) accidental death and dismemberment insurance, and
(3) dependent life insurance. These added benefits may be provided for all employees insured under the basic group term contract or may be limited to certain classes of employees. With the exception of dependent life insurance, these coverages may also be written as separate contracts.

Supplemental Life Insurance
The majority of group life insurance plans enable all or certain classes of employees to purchase additional amounts of life insurance. Generally, the employer provides a basic amount of life insurance to all eligible employees on a noncontributory basis. This is commonly a flat amount of coverage or a multiple of annual earnings. The supplemental coverage is contributory and may be either incorporated into the basic group life insurance contract or contained in a separate contract. The latter method tends to be more common when the supplemental coverage is available only to a select group of employees. The employee may pay the entire cost of the supplemental coverage; however, state laws that require employer contributions or insurance company underwriting practices often result in the employer's paying a portion of the cost. It is not unusual for there to be two sets of rates—one for smokers and another for nonsmokers.

The amount of supplemental coverage available is specified in a benefit schedule. Under some plans, an employee must purchase the full amount of coverage; under other plans, an employee may purchase a portion of the coverage. Tables 1 and 2 are two examples of benefit schedules for a basic-plus-supplemental life insurance plan.


Table 1: Benefit Schedule (Flat Amount)


Table 2: Benefit Schedule (Multiple of Annual Earnings)

Giving employees the right to choose their benefit amounts leads to adverse selection. As a result, more stringent underwriting requirements are usually associated with supplemental coverage. These often include requiring individual evidence of insurability, except possibly when the additional amount of coverage is modest. In addition, higher rates may be charged for supplemental insurance than for basic coverage.