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    What is Supplemental Life Insurance?

    5 mins

    No one likes having to think about insurance. It’s only needed when something has gone wrong, after all. But without insurance, you and your loved ones aren’t covered in case of a tragedy or emergency.

    You may already have life insurance, but it could be insufficient, and this is where supplemental life insurance picks up the slack. If you’re asking yourself, “is supplemental life insurance worth it,” determine what your spouse or family would need to maintain your standard of living if you weren’t there anymore.

    If your current amount of insurance won’t be enough, it’s time to get more.

    Think of it this way: What is supplemental life insurance but a way to ensure peace of mind for the future? Supplemental life insurance is just an extra layer of coverage.

    You can purchase it in addition to your basic coverage, and it will pay out in the event you die or are in a serious accident. It may come through your employer, or you might purchase through a private insurer.

    Why Purchase Supplemental Life Insurance?

    The short answer is because you never know what life can throw at you. Accidents can happen at any time. Particular situations have different needs, of course. You might need to replace your income to cover mortgages and college tuition.

    Perhaps you want to provide your spouse with home care, such as meals, cleaning, and transportation. You might also want to eliminate debt or take care of your spouse’s retirement.

    Different Types of Supplemental Life Insurance

    To ensure your loved ones are covered, there are additional layers of insurance you can choose from. It may depend on job-related hazards or family structure. Regardless of the reason, you may want to consider one of the following:

    Spouse/Domestic Partner Insurance

    If you and your spouse maintain a dual-income household, you may be reliant on your spouse’s income as well as yours. If this is the case, you may want to purchase coverage for them as well to provide relief for you in the event of their passing.

    Accidental Death and Dismemberment (AD&D)

    You may have a job that’s heavily reliant upon your physical abilities, and you wouldn’t be able to continue working if you were injured. If you fear an accidental death, becoming paralyzed, or otherwise disabled due to an accident, AD&D is an excellent addition.

    Accidental Death and Personal Loss Insurance

    This coverage may seem similar to AD&D, but accidental death and personal loss insurance also covers comatose conditions and can provide monthly payments to beneficiaries.

    Burial Insurance

    Supplemental life insurance is about is taking care of every eventuality, and your funeral needs to be included. The amount paid out for burial insurance may be relatively low, perhaps only about $10,000, but this would be enough to cover your burial fees.

    How Much Supplemental Insurance Should You Buy?

    In seeking the answer to the question, “is supplemental life insurance worth it,” the factor of the cost will come into play. The rule of thumb is coverage equal to 7 to 10 times your annual income.

    This ratio isn’t a hard and fast rule and can change depending on how many dependents you have (children, elderly parents), how much debt you have (house, car), income changes, spouse’s working arrangements, etc.

    Where Can You Get Supplemental Life Insurance?

    When adding extra insurance, the source of your insurance makes a difference. Let’s examine the two main ways to get your insurance:

    Employer-Provided Insurance

    You may already have some insurance through your workplace. If this is the case, regardless of whether your insurance is provided as a benefit or if you pay into it yourself, you will have to pay extra for supplemental life insurance.

    You get the benefit of higher coverage, but along with that comes additional premiums your employer may not want to cover.

    Most of the time, employer insurance policies are through group term life insurance. This approach means that coverage is conditional upon your employment with the company, though sometimes you can transfer coverage to a private policy should you put in your notice.

    Depending on your salary, you may be capped at $500,000 of coverage, or you could get coverage in the millions. Coverage for your spouse will generally be lower, usually half of your amount, somewhere between $50,000 and $500,000.

    Private Insurance

    Exploring the free market opens up more possibilities for expanded coverage, but that coverage may be more expensive than through an employer and could be health-dependent. Often a physical exam is required. With that being said, if you pass the physical exam and pay the higher premium, your coverage amounts can be generally higher than with employer-offered insurance policies.

    How Much Will Supplemental Life Insurance Cost?

    As with many insurance cost questions, the answer is, “it depends.” If you’re in your 20’s, your monthly premiums could be as little as an extra $150 per year through your employer’s offerings. If you’re 65 and purchasing privately for a high payout policy, you could be paying over $5,000 per year.

    Term life insurance can have either locked or variable premiums, but it does expire after a period of time, or a “term” of coverage. In contrast, whole life is generally in force for your “whole life” and stays in force as long as you pay the premium. Therefore, term is generally more affordable than whole life insurance.

    What About Joint Life Insurance Policies?

    Joint policies are an alternative way to protect your spouse and possibly a cheaper one. Because they are intended to protect a couple, i.e., people who are married or in a domestic partnership, you are essentially getting a “bundle rate” for a policy. Depending on your needs, you can also set payouts based on first-to-die or second-to-die.

    What to Consider When Purchasing Supplemental Life Insurance

    Thinking about your needs now protects you later. Determine the amount of coverage you need, decide what aspects of your life need covering, figure out if you need medical exams to get coverage, and name your beneficiary.

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    Kristina Dinabourgski
    Has a passion for demystifying benefits 🎉
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