What Is Supplemental Employee Life and AD&D?

Employee benefits form an important part of a compensation package, offering a range of protections beyond salary. Supplemental employee life insurance and accidental death & dismemberment (AD&D) coverage are valuable components. They provide additional financial security, complementing any basic coverage an employer might provide.

Supplemental Life Insurance Explained

Supplemental life insurance provides coverage an employee can purchase in addition to any basic group life insurance an employer might offer. While basic group life insurance is often a smaller, employer-paid amount, supplemental coverage allows individuals to increase their protection, typically at their own expense through payroll deductions. This insurance offers greater financial protection to designated beneficiaries upon the insured’s death. It helps ensure surviving family members have resources to manage financial obligations, replace lost income, or cover future expenses like education.

Coverage options for supplemental life insurance frequently include multiples of an employee’s annual salary, or they might be offered as fixed flat amounts. Most employer-sponsored supplemental life policies are term life insurance, providing coverage for a specific period tied to employment. Unlike permanent life insurance, term policies do not build cash value. Designating beneficiaries is important to ensure the death benefit is paid according to the insured’s wishes.

Upon the death of the insured, the death benefit from supplemental life insurance is paid directly to the named beneficiaries. This payout is generally a lump sum, providing immediate financial liquidity. The amount received can help beneficiaries address various financial needs, from covering everyday living expenses to settling debts or funding long-term goals.

Accidental Death & Dismemberment (AD&D) Coverage

Accidental Death & Dismemberment (AD&D) insurance pays benefits only if death or specific injuries result directly from an accident. It differs from standard life insurance because its payout is triggered exclusively by accidental events, rather than death from illness or natural causes.

Dismemberment in AD&D policies refers to the loss, or loss of use, of specific body parts or functions. This can include the loss of a limb, sight, hearing, or speech due to an accident. The benefit structure usually provides the full policy amount for accidental death, while partial benefits are paid for specific dismemberment injuries. For example, a policy might pay half the accidental death benefit for the loss of one hand or foot, or a quarter for the loss of sight in one eye.

The purpose of AD&D coverage is to offer financial support in cases of severe accidental injury or death that could have significant financial consequences. This can help cover medical costs, rehabilitation expenses, or provide income replacement if an individual is unable to work due to an accidental injury. AD&D does not cover deaths or injuries resulting from illness, natural causes, or self-inflicted harm.

Enrollment and Policy Features

Obtaining supplemental life and AD&D coverage through an employer involves specific enrollment periods. New employees usually have an initial enrollment window, often around 30 days from their hire date, to elect benefits. For existing employees, annual open enrollment periods, commonly held in the fall, provide an opportunity to enroll in or make changes to their coverage for the upcoming plan year. Outside these periods, changes are generally only permitted following a qualifying life event, such as marriage, the birth of a child, or loss of other coverage.

The cost for supplemental life and AD&D coverage is paid by the employee through payroll deductions. These are considered contributory plans, where the employee contributes to the premium, as opposed to non-contributory plans where the employer pays the full cost. Higher coverage levels may require providing evidence of insurability, such as answering health questions or undergoing a medical exam.

Designating and regularly reviewing beneficiaries is important. The beneficiary designation dictates who receives the death benefit, and outdated information could lead to unintended recipients or delays in payout. It is advisable to update beneficiaries after significant life events like marriage, divorce, or the birth of a child. Common exclusions in these policies include death or injury due to suicide (within a specified period, typically one or two years), self-inflicted injuries, participation in illegal activities, acts of war, or engaging in certain high-risk hobbies.

Continuing Coverage

Should an employee leave their job, options for continuing coverage may be available. Portability allows an employee to continue their group coverage as a term policy, often with higher premiums, without needing a new medical exam. Conversion permits converting the group life coverage into an individual whole life policy, also without new medical underwriting, though premiums for converted policies tend to be higher than group rates. AD&D coverage is generally not eligible for conversion to an individual policy.

Tax Implications

Premiums for supplemental coverage are typically paid with after-tax dollars. Death benefits paid to beneficiaries from these policies are generally not considered taxable income at the federal level. However, any interest earned on benefits held by the insurer before payout can be taxable.