I have seen and read about many individuals who left behind their families in dismay because they did not make the proper contingencies, such as investing in a life insurance policy while they were alive.
They leave behind so many obligations and debt, in addition to the emotional burden and stress from paying off those dues.
All of which could be avoided had they paid premiums for a life insurance plan.
You should not think that life insurance is just another expense; it is an investment.
If you are married and have children, your family will depend on your income. If you don’t have children but live with a partner, then that partner depends on you for your share of household bills and expenses.
Your family members will surely grieve your loss, and not having enough money to cover financial obligations makes the situation worse. There is just this harrowing feeling of what will happen.
And contrary to the belief of many, life insurance is more affordable than they think.
Once you have life insurance, bolster your coverage through opting into a supplemental life insurance package.
What is Supplemental Life Insurance?
Let me ask you a question. If you would pass away today, would your family suffer financially? For sure, many would say yes.
The average cost of a funeral service in 2015 amounted to above $7,000, rising to $8,500 if a vault is needed. Factor inflation in, and you will realize that an average funeral service would cost more today than in 2015.
Yes, you would cause no more expenses in the future, but the ones you left behind must pay for your wake and burial expenses now.
And how would they handle the financial obligations you have left behind? How would they take care of your debts and unpaid taxes, as well as other expenses such as supporting your spouse and children?
Someone will have to pay for these costs. And you surely don’t want to inconvenience your mourning family members further, would you?
If you do not have the financial capability to cover these expenses, then consider investing in a life insurance plan. As much as possible, everyone should have some sort of life insurance.
A life insurance policy is a contract with an insurance provider, where in exchange for premium payments, the firm provides a lump-sum payment to the beneficiaries upon the death of the policyholder.
But sometimes, the amount of a traditional life insurance’s payout is not enough to cover the perceived expenses upon and after your death. In situations like these, a supplemental life insurance policy covers your shortfalls.
Supplemental life insurance is an additional form of life insurance. It goes beyond the standard life package.
A supplemental life insurance package may be offered by your employer as part of an employee benefits plan, or it may be acquired through a separate private company.
Relevant: Read about the difference between term and whole life insurance
What You Need To Know
Supplemental life insurance is quite similar with respect to a regular life insurance policy but is more limited in scope.
Supplemental Policies Purchased Through Employers Are Non-Portable
Most employer-sponsored insurance policies will not come with you when you move on to a different employer, when you are fired, or when you retire.
If you opted to receive an employer-sponsored insurance policy, find out if you can pay an amount to let you carry your benefits wherever you go. If there is none and you are not sure you will stay with that one employer, then consider a private policy.
They May Be Offered By An Employer Or Purchased Separately
As part of a company’s overall benefits plan, an employer may offer you a supplemental insurance package. There are also policies available privately.
It Is Usually Paid Out Of Your Paycheck
Supplemental life insurance is purchased in addition to the group life coverage your company already offers. Like group life insurance, it is usually paid through a cut from your paycheck.
While group life insurance is part of an employer’s benefits package and therefore is relatively cheaper, that is sometimes not the case for supplemental life insurance.
How Does It Work?
If you are on a company’s payroll, then your employer may offer supplemental life insurance as part of the overall benefits package. You may inquire about the specific terms of the policy, such as:
- What events are exactly covered;
- The extent of the amount it covers;
- How the policies are covered;
- When does the policy activate;
- How much the package costs.
The specifications differ from employer to employer, so take note of them. You don’t want to be caught in an event assuming to be covered by insurance when, in fact, you are not.
Unlike the basic life insurance coverage offered by employers, which may not require evidence of insurability, a supplemental package may require health and medical information.
In the basic insurance coverage offered by employers, everyone qualifies, and therefore an employee needs no more evidence of insurability. However, the insurance firm tapped by your employer may not be too keen on granting additional coverages, and may ask for medical and health data, or increase the premium payments.
Types of Supplemental Life Insurance
Here are the general types of supplemental life insurance:
- Accidental Death and Dismemberment (AD&D)
- Dependent Child Insurance
- Spousal or Domestic Partner Insurance
- Burial Insurance
- Health Specific Insurance
AD&D
Some of these supplemental packages are for accidental death and dismemberment (AD&D). Your beneficiaries will only receive the benefits if your death was through an accident.
Some policies, though, also give payouts if you are involved in a serious or covered accident, and you lose something vital, other than your life. Examples of these are your arms, legs, hearing, or eyesight.
Dependent Child Insurance
These sets of policies cover the children you declare as dependents. The amounts involved are generally across the board lower than those offered to employees or those entered into for domestic partners and spouses.
Spousal or Domestic Partner Insurance
Sometimes, these supplemental policies take the form of domestic partner insurance, where you can purchase insurance in the name of your spouse. This one may complement the life insurance policy you already have at hand but may have lower amounts of benefits.
Burial Insurance
They are typically in the $5,000 to $10,000 range and are strictly only to cover the expenses of funeral and burial services in the event of your untimely death.
Health-Specific Insurance
Health-Specific insurance coverage will pay a benefit if your death is because of an underlying medical condition, like a kidney or heart disease, cancer, or other terminal diseases. If these types of illnesses run within your family tree, then it may be wise to invest in this kind of insurance.
Is It Worth It?
The question of whether or not a supplemental life insurance policy is worth it depends on the circumstances that differ between potential policyholders. There are a variety of factors, however, which may help you come to a decision.
Current Coverage
You don’t want to look at policies separately, as buying insurance should be a holistic experience. You will need to look at your policies as a whole and sum your insurance coverage.
Determining the right amount of life insurance to get can be tough. A rule of thumb says you need to have ten times your annual salary as the coverage amount, but even that is not fixed.
Everything depends on your circumstances. If you deem the current coverage as enough, then a supplemental coverage is just an unnecessary expense.
If you are uncomfortable with your coverage, or if the current coverage is not enough, then opting in for a supplemental insurance package can be a good idea.
Limitations of the policy
Knowing the policy limit is true for any insurance contract, but a supplementary policy with so many exceptions and clauses would need additional scrutiny.
For instance, if your policy will only pay you if you are involved in a type of accident you are unlikely to experience, then the supplementary policy is not worth the cost. A policy with a broad coverage would be worth the expense.
There is also the issue of portability. Be sure that you have a backup plan, or you can pay the related costs before moving on to your new employer.
The Cost
Before signing up for any employer-sponsored insurance plans, check around to see if you will get better terms on your own.
If you are in excellent health, then coverage from a separate private insurance firm may cost you lower than the group policy. For those of lesser health, then employer-based coverage may be the cheaper option.
Check and see if the money you forego through the monthly premiums is worth the benefits, taking into account the likelihood of the covered issues and accidents.
Additionally, generally speaking, a life insurance company offering supplemental life insurance knows less than a normal insurer. When applying for a typical individual policy, an insurer will ask many health-related queries, while those offering supplemental insurance would ask less.
To cover for that risk, they charge higher prices across the board.
Should I Get It?
Let me preface this section by saying that: it all depends on you. But with the uncertainty in today’s day and age, a life insurance policy is a worthy investment.
Supplemental life insurance is most useful for people who are having a difficult time purchasing full coverage or find it expensive.
Also, let us say you are old, smoked a lot in your younger years, and is a thrill seeker with constant paragliding and skiing trips. A life insurance company would look at all of these and consider the probability that all of those will contribute to your death, and price your premiums accordingly.
A supplemental life insurance package comes from a company that will know less about those particulars. As a result, you will pay fewer premiums for the policy.
Any kind of life insurance is better than none at all. If the supplementary insurance offered through the employer is relatively cheap, then it may be well to invest in it.
But relying on supplemental insurance alone is less than ideal. One option you can take is to buy a separate insurance policy, wholly independent of what the employer offers.
- Doing this will give you a portable policy you can bring with you regardless of your employer.
- A permanent policy will last with you as long as you live and provided that you pay the required premium payments. Employer-backed supplemental insurance does not.
- You have the power to select the death benefit and not your employer.
- You have the choice of policy types, so you will only pay premiums for likely coverages.
- Private policies can be enhanced with riders.
Availing supplementary life insurance depends on many subjective things. So to answer the question of whether or not you should get one, I would say that it depends.
If you are on the healthy side and you know that you can find reasonable rates somewhere else, then I would not recommend supplemental coverage. It is only useful if you have pre-existing conditions you do not want to be made known to an insurer, or if you cannot buy a regular life insurance policy.
Not everyone will derive much value from it, but those who have difficulties in finding a full life insurance plan can try and make do with supplemental coverage first. But after, try to find a full-coverage plan to enhance your contingencies against incidents and issues you might encounter later on.
And that is all about supplemental life insurance. And just as it is important to understand what it really is, you must also know what it is not.
A supplemental life insurance policy is not a replacement for solid life insurance coverage. But supplemental coverage will help your bridge the cash shortage if the benefits of the life insurance policy are not enough.
A solid insurance policy offers much more than financial security and coverage. To an extent, it provides emotional support for whatever situation life will throw at you.
Whether you decide to buy a separate policy from a private insurance firm, or use the one your employer offers, see how the policy will fit into your present set of coverages. Consider the pros and cons of supplemental policies versus regular life insurance.
If you have more questions, then feel free to drop them in the comments section.
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