In most cases, employers and other organizations offer term life insurance for their employees. Typically, the coverage amount is a specific multiple of the worker’s annual salary. This leads to varying coverage amounts for each person based on what they do and how much they make doing it.
Some people will find that the coverage amount offered by the company isn’t enough. This is often the case for someone with extensive financial liabilities or a large family. Supplemental life insurance is an additional policy that can give you increased protection and better coverage.
Table of Contents:
- What Supplemental Life Insurance Is All About
- Why Term Life Insurance Isn’t Always Enough
- The Limitations of Whole Life Insurance Policies
- Supplemental Life Insurance from an Employer
- Private Supplemental Life Insurance
- Deciding Whether Supplemental Life Insurance Is Right for You
- Choosing to Purchase Supplemental Life Insurance
What Supplemental Life Insurance Is All About
Supplemental life insurance, which is sometimes called voluntary supplemental life insurance, is a type of life insurance taken out on top of what your employer provides. If it’s taken out through your employer, the payments will often be handled by deducting your paychecks’ premiums. Depending on the insurer, supplemental life insurance may be available for you, your children, and your spouse.
Why Term Life Insurance Isn’t Always Enough
In many cases, individuals have a choice between term life insurance and whole life insurance. Term life insurance means that you are insured for a certain amount of time, known as a term. Private companies and employers both offer term life insurance. Since this kind of insurance is only useful over a specific term, it typically costs much less than whole life insurance, which is suitable for an individual’s entire life.
The primary issue with term life insurance is that most people rely on their employer for the coverage, and the company might not offer enough coverage. Most employer plans will equal one to two times a person’s annual salary, so a person who makes $40,000 a year might get $80,000 in insurance for no cost. Someone who is single or has only one dependent might be happy with that coverage level.
The issue is that someone with a larger family might find the amount inadequate for their needs. A more considerable amount of coverage might be needed to take care of children and a spouse if the person were to die unexpectedly. Supplemental insurance fills in the gaps left by insurance provided by an employee.
The Limitations of Whole Life Insurance Policies
Whole life insurance tends to be much more expensive than term life insurance. These life insurance policies typically cover someone over their entire lifetime. The policy will build up cash value and can be cashed out if the policyholder wishes to do so.
Since this insurance offers more thorough coverage, it’s also more expensive. For large families, accessing enough whole life insurance for everyone may be too costly to consider. In many cases, choosing supplemental term life insurance is the most cost-effective option.
Supplemental Life Insurance from an Employer
Some employees offer both typical term life insurance as well as supplemental life insurance. When purchasing term life insurance through an employer, it has the same attributes as individual term life insurance. However, since it’s a group policy, it tends to be less expensive. The insurance company has less risk when insuring more people, creating savings for everyone working at a specific company.
While supplemental insurance is similar to term life insurance, it’s often more limited. Some of the limits will vary by provider and policy, so make sure to look for these items:
- Accidental Death and Dismemberment – Some supplemental life insurance policies are only available for accidental death and dismemberment. These policies will only cover you if you die in an accident. In some cases, you’ll also be paid for a serious accident if you do not pass away. Examples include losing a limb, losing your hearing, or losing your eyesight.
- Burial Insurance – Some supplemental life insurance policies are created only to offer funeral services and burial in the case of death. While the amount of coverage can vary, it typically provides around $5,000 to $10,000 for burials and funeral services.
- Non-Portable – In many cases, when you get supplemental insurance from an employee, it will be non-portable. What that means is that you can’t take it along with you if you retire or move to a new company. This can be problematic in many different cases.
- Domestic Partner or Spouse Insurance – Depending on the policy, you may be able to buy supplemental life insurance for your domestic partner or spouse. This is often a complement to your term life insurance policy. The limits can be lower than your own and may have additional limits.
Keep in mind that every employer is different depending on what plan is in place. Make sure you look at all the details and limitations before choosing to purchase a policy.
Private Supplemental Life Insurance
While you can buy supplemental life insurance through an employer, you can also purchase it through the private market. This is similar to purchasing private term life insurance. You can take a look at what offers are available, find the best deal, and buy the insurance privately.
Some of the same limitations may apply for private supplemental life insurance as a policy from an employer. You’re able to purchase burial insurance and accidental death and dismemberment insurance privately. These policies can often be added as a rider to term life insurance when you are buying it.
However, the unique feature of private supplemental insurance is that it is portable. You can keep the coverage for as long as you continue to pay your premiums. You can also elect to purchase this kind of insurance for a domestic partner or spouse in their own name.
Sometimes, private supplemental insurance is also less expensive than a policy from an employer. Someone young and healthy will find that most life insurance is inexpensive. Before you decide to go with your employer’s policy, see if private insurance is a better deal.
Deciding Whether Supplemental Life Insurance Is Right for You
At this point, you have an idea of what supplemental life insurance is, so you need to consider whether it’s worth spending money on for you. This will vary based on everything from the cost to the insurance you already have and what limitations are in place.
Your Current Coverage
When you’re purchasing life insurance, it’s essential to look at all your policies as a whole. Before shopping for private supplemental insurance or adding it to your employment insurance coverage, make sure you consider the coverage you already have.
While it can be challenging to determine how much life insurance to get, many people recommend that it should be ten times your annual salary. However, everyone is different so consider your unique needs.
If you have enough insurance from your current policies, getting supplemental insurance may not be required. The amount you spend on premiums could be spent on your other financial goals. On the other hand, if you need more coverage, supplemental life insurance could be the right choice for you.
When you’re looking for a supplemental life insurance policy, make sure you read and understand the policy limitations. This is also true for any other kind of life insurance policy. But since supplemental life insurance often has several exceptions and clauses, it’s especially crucial in this case.
Keep in mind that the less likely you are to need insurance, the less you should be paying for it. For example, if your accidental death and dismemberment insurance only pays out for two types of accidents that you aren’t likely to experience, it’s probably not worth the cost. However, if it covers an extensive range of accidents, it might be worth the money.
It’s also important not to forget about portability. If the life insurance policy is non-portable, you should have a backup or a plan so you’ll be covered if you move to a new company to work for any reason.
As we mentioned, before you sign up for an employer’s life insurance plan of any kind, take time to see if you can get a better price on the private market. Someone healthy and young might get a better price than through a group policy. This tends to be unusual, but that doesn’t mean it isn’t possible.
Sometimes, if private insurance is slightly more expensive, it’s still worth considering. Since it’s portable coverage, you know you’ll have it through the entire term.
Employer coverage is likely to be the least expensive option available for anyone less healthy or older. If supplemental coverage is too costly, it might not be worth the money. Consider the cost versus your needs and the likelihood you’ll end up using the policy.
Choosing to Purchase Supplemental Life Insurance
If you don’t have enough insurance coverage through other means, supplemental insurance can be an excellent choice to bridge the gap. It can be added to your term life insurance to create better coverage or give you added benefits like burial benefits that can help your loved ones if you pass away. Make sure to explore all your options and make a decision that is right for you.