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What is supplemental life insurance?

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With all the options on the market, how do you know if you need supplemental life insurance? It’s not uncommon for people to have at least one type of life insurance policy, but in an increasingly complex world, one isn’t always enough. Maybe your current policy will see to it that your spouse or children will be well-cared for if you die, but what if you’re only injured to the point of losing income? Supplemental life insurance policies come in all shapes and sizes and can help in situations just like this. This article will explain what supplemental life insurance is, who may be eligible for it, what different types are available and how you can obtain it.  

What is supplemental life insurance?

Supplemental life insurance is any life insurance policy that is purchased in addition to another plan as a type of extension or addition. These commonly include burial insurance, accidental death and dismemberment (AD&D) and extending the coverage amounts on an existing policy. These plans add to an existing one, making it more suited to the insured’s specific needs.

Supplemental employee life insurance is often offered — to varying degrees — to many full-time employees as part of the employee benefits package. It is also common to see some of these policies provided inexpensively by certain banks for account holders. Many supplemental policies are offered with minimal screening or application requirements. As a result, they tend to have higher premiums (compared to the payout) than primary life insurance policies.

The main difference between supplemental life insurance and the traditional life insurance policy types—term, whole, and universal—is that supplemental rarely serves as a standalone policy. You can purchase a supplemental type policy without a primary life insurance policy, but the payout on these types is minimal and is not intended to replace a full life insurance policy.

Who can get supplemental life insurance?

Requirements can vary by policy subtype and between insurance companies, but many supplemental insurance policies have minimal screening requirements, such as a questionnaire. That said, some plans will still require a full insurance medical exam. 

If your employer offers the policy, you may not even have to fill out a questionnaire. If purchased privately, you might encounter restrictions on supplemental life insurance coverage amounts based on your age and general health. Even so, these restrictions tend to be lighter than those for full life insurance policies.

What are the different types of supplemental life insurance?

Supplemental life insurance comes in many forms, the more common of which include accidental death and dismemberment, final expense and disability. However, insurance companies have significant leeway in creating new policies and anticipating customer needs so this list is not comprehensive.  

Accidental death and dismemberment

Also referred to as AD&D, these policies pay out only if the insured individual is dismembered or killed by a covered accident. One of the critical benefits of AD&D insurance is that it can make a payout while the insured individual still lives, helping to replace income lost due to injury. This insurance is best for those with high-risk professions.

Final expense insurance

Final expense insurance provides small payouts in the range $5,000 to $25,000 and are designed to help primarily with burial and funeral costs. These policies are best for those who want to cover funeral costs without taking on a full life insurance policy.

Disability insurance

Disability insurance policies come in short and long-term structures. The purpose of disability insurance is to cover a portion of your salary if an injury or disability keeps you from working. Unlike AD&D, these policies do not always provide a death benefit payout. Disability insurance is best for those at higher-than-average risk of sustaining a debilitating injury or illness that could limit their ability to work or otherwise earn an income.

Dependent child insurance

More traditional life insurance policies, except smaller, dependent child insurance provides a death benefit if a child dependent passes away unexpectedly. These policies tend to have smaller premiums and payouts, which typically go towards funeral or outstanding medical expenses, and are best for those with children at higher than average risk of early death.

Why get supplemental life insurance?

One of the most common reasons to get supplemental life insurance is because your current life insurance policy does not have sufficient coverage. Another excellent reason is that your employer might offer it for free or cheap. In general, most choose supplemental life insurance because the benefits outweigh the costs. 

Consider, how much is it worth to have financial coverage for unexpected funeral costs? What about removing the financial insecurity around an income-threatening injury or illness? If these assurances are worth the price of a premium to you, then supplemental life insurance may be a good idea. Keep in mind the following considerations:

ProsCons
Provides additional coverage optionsMonthly premium payments (if not covered by employer)
Many different types for different needsIndividual policy limitations and requirements
Might be free or subsidized by your employerMay have a waiting period before payouts are possible

How to get supplemental life insurance

Thankfully, applying for supplemental life insurance is generally no more difficult than applying for traditional life insurance policies. Below are the primary steps to take for getting supplemental life insurance, though the exact process may vary by provider.

  •  First, find out if you can get supplemental life insurance through your employer. If so, they will likely cover at least a portion of the premiums. If this is the case, inform your employer that you would like to enroll either at the time you are hired or during an open enrollment period. They will provide you with the necessary paperwork.
  •  If you are looking at private supplemental life insurance instead of employer-offered, the first step is to determine what kind of insurance you want. Are you looking for AD&D, final expense, disability or something else?
  • With your chosen supplemental policy type in mind, request quotes from a few different insurance companies. Compare the premiums and coverages between these companies to see who offers you the best deal.
  •  Choose the company that offers the best rates on the policy you want and fill out an application. This can generally be done in-person, over the phone, on the company website or by email.
  • If your application is accepted, all that’s left is to make your first premium payment. Once the insurance company receives your payment, your new policy will be activated.

The takeaway

  • Supplemental life insurance policies are purchased in addition to term, whole or universal life insurance policies.
  • Accidental death and dismemberment, disability insurance and final expense insurance are all examples of supplemental life insurance.
  • Full-time employees can often get subsidized supplemental life insurance policies through their employers.
  • Entry requirements for supplemental insurance policies are generally less stringent than for traditional life insurance policies.
  • Supplemental life and AD&D can fill in coverage gaps of existing policies.

In the right situations, supplemental life insurance can be tremendously beneficial. Like all forms of insurance, however, it doesn’t do much good unless you need to use it. Taking out a supplemental policy can be a great way to gain peace of mind and financial security, but it’s important to match the plan to your needs. Based on your risk profile, you can typically find a supplemental life insurance policy for your needs.

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