What Is Supplemental Life Insurance?

Life insurance is a great way to give your family peace of mind and financial security. These financial products are also versatile, allowing you to generate and pass on wealth.


What is Supplemental life insurance exactly? It is a type of coverage that can be added to your employer-provided life insurance policy, or purchased individually. It is designed to provide additional financial protection for your loved ones in the event of your unexpected death.


In this article, we'll explore the benefits of employee supplemental life insurance, what it covers, and how to determine if it's the right option for your needs. Whether you're just starting your career or are well into retirement, understanding the importance of supplemental life insurance can provide peace of mind for you and your family.

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How Does Supplemental Life Insurance Work?

Supplemental life insurance is an additional type of voluntary life insurance coverage that you can add to your existing policy through work to increase the overall death benefit. It is designed to provide extra financial protection for your loved ones in the event of an unexpected death.


The basic life insurance through employers typically offers a coverage amount that is a multiple of your salary. Voluntary supplemental life insurance goes above and beyond that to provide your family with additional funds to help pay off debts, mortgages, and other expenses.


If your basic life insurance policy has a $50,000 benefit, adding a supplemental life insurance policy will add to that $50,000 of coverage. For example, taking a supplemental insurance policy for $100,000 means that your family will receive a total of $150,000 instead of just the $50,000 from your basic policy if you pass-away.


When it comes to purchasing a supplemental life insurance policy you should check with your employer to see if they offer this as an additional benefit and you should shop around. Check out pricing from private insurers to compare optional life insurance coverage options to ensure you are getting a policy that best fits your needs and budget.

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What does a Supplemental Life Insurance Policy Include?

When it comes to life insurance policies, it’s clear that the basic options from your employer are limited. Supplemental life insurance policies are designed to build on that to provide you with even more protection.


The ability to customize your individual insurance policy is one of the main benefits of owning a supplemental policy. This means that the coverage you get and the premiums you pay are specific to your exact needs.


While the coverage and benefits will depend on the individual policy and insurer, typically the benefits include:

  1. Increased coverage amount: A supplemental policy typically provides a higher coverage amount than the primary policy.
  2. Additional benefits: Depending on the policy and insurer, a supplemental policy may offer additional benefits such as accidental death coverage, disability coverage, critical illness coverage, waiver of premium, etc.
  3. Flexibility: Supplemental policies often offer greater flexibility in terms of coverage options, payment options, and policy terms.
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Does My Employer Provide Supplemental Life Insurance?

Basic life insurance is offered by most employers.This is seen as a benefit and is usually free for all employees. However, supplemental insurance policies are sometimes offered at an added premium every month. Depending on the plans available, in addition to term life insurance, other types of supplemental life insurance that employers may offer include accidental death and dismemberment insurance, whole life insurance, and universal life insurance.


It’s important to ask your HR department about this. If they’re unsure, ask for the details of the insurance company. You can then contact them directly for more information on your policy and what else they can offer you.


Employer Supplemental Insurance Has Limitations

While being able to purchase supplemental life insurance through your employer has benefits such as potential cost savings, convenience of not having to go through medical exams and coverage that could be a guaranteed issue no matter what your health status is, there are some limitations including:

  1. Most employer-based supplemental life insurance policies are not portable, meaning if an employee leaves their job, they lose their coverage.
  2. The types of supplemental policies offered could limit coverage options. It’s important to research what type of policies are being offered to make sure they are not limited to accidental deaths or minimal coverage amounts.
  3. Most of the time, coverage through work is not customizable so coverage cannot be tailored to the employees’ specific needs.
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What Are The Most Common Types of Supplemental Life Insurance?

When it comes to life insurance, there are a few popular options out there. Here’s a quick look at the options.


Here are the most common types of supplemental life insurance policies:


Term Life Insurance

This is the most basic and affordable type of life insurance policy. Term life insurance provides coverage for a specific term, usually 10, 20, or 30 years. If you die during the term of the policy, your beneficiaries will receive a lump sum payout.


Whole Life Insurance

This type of policy provides coverage for your entire life, as long as you continue to pay the premiums. A whole life insurance policy also builds cash value over time, which you can borrow against or use to pay premiums.


Universal Life Insurance

A Universal life insurance policy is similar to whole life insurance, but it offers more flexibility in terms of premium payments and death benefits. You can adjust your premiums and death benefits as your needs change over time.


Accidental Death and Dismemberment Insurance (AD&D)

This policy pays out a lump sum if you die or are seriously injured in an accident. An Accidental Death and Dismemberment insurance policy is typically less expensive than other types of life insurance because it only covers accidents.


Critical Illness Insurance

A Critical Illness Insurance policy pays out a lump sum if you're diagnosed with a serious illness like cancer, heart attack, or stroke. It can help cover medical expenses and lost income during your recovery.


These are just a few of the most common types of supplemental life insurance policies. It's important to carefully consider your needs and budget when choosing a policy to make sure it is right for you.

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The Difference Between Basic and Supplemental Insurance Policies

Basic life insurance is typically a free benefit that you get from your employer. This kind of insurance policy is there to take care of your family if anything were to happen to you. Basic life insurance is usually sold as a group policy, with all the bare essentials that you may need.


In most cases, the policy will be linked directly to your annual salary. This means that if you earn $60,000 a year, your policy can be a lump sum of 2x your annual salary at $120,000. However, this may not be enough to take care of your family, loved ones, and liabilities.


This is where supplemental life insurance comes in. Supplemental life insurance is an additional policy that you can get alongside your basic insurance. This means that if something happens to you, your family will be adequately protected.


These policies typically have higher death benefits, and can also offer additional coverage for specific events such as accidental death or dismemberment, critical illness, or long-term care.


While basic employer-provided life insurance policies can provide important coverage for many employees, supplemental policies can be a good option for those who want to ensure that their loved ones are well-protected in the event of their unexpected death or other unforeseen events, and are willing to pay for additional coverage.

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When Should I Get Supplemental Life Insurance?

Life insurance is incredibly important to provide financial security to your family and loved ones. However, the need for life insurance does increase as your liabilities and dependents increase. This is why the basic life insurance from your employer may be sufficient for young people with no dependents or major liabilities.


If you just have a car that you pay for every month, the standard employer life insurance plan is enough. These plans tend to cover a multiple of your annual salary and are generally enough to pay off any debts you have. However, the need for supplemental life insurance increases when you have a family and kids to think about.


This is because supplemental life insurance offers far more benefits for your dependents. Supplemental life insurance goes above and beyond the group policy and can help ensure your family’s well-being. The added policy can help pay for college or even create generational wealth for your family.


You can also increase your supplemental life insurance policy as your needs grow. The amount that you may need when you get married is very different from what you’d need when you have a home and four kids. This is why it’s always a great idea to find an insurance policy that lets you customize and adapt the policy over time.

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Can you Cash Out Supplemental Life Insurance?

In most cases, you cannot cash out a supplemental life insurance policy. Supplemental life insurance policies are typically designed to provide additional coverage in the event of the policyholder's death, and are not meant to be used as a savings or investment vehicle.


However, some types of supplemental life insurance policies, such as whole life insurance policies. Whole life insurance policies have a cash value component that accumulates over time. In some cases, the policyholder may be able to access this cash value by taking out a loan against the policy or by surrendering the policy.


It's important to note that accessing the cash value of a supplemental life insurance policy may have tax consequences and may also reduce the death benefit payable to the policyholder's beneficiaries.


This is why it’s so important to understand all the details of the insurance policy before you make your final decision.

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Is Supplemental Life Insurance Worth It? YES!

It’s no secret that life insurance is a vital part of planning for the future. Whether you’re retiring soon, or you just landed your first job, investing in life insurance is important. While you may be okay with your employer’s policy, you should be aware of the limitations that come with it.


This is why it’s always a great idea to consider investing in supplemental life insurance. This gives you even more coverage so that your family can have peace of mind.

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Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.

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