Supplemental Life Insurance: What Is It & What Does It Cover?

Supplemental Life Insurance: What Is It & What Does It Cover?
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If you pass away, life insurance might help financially shield your family from the loss of your income. The coverage provided as part of your benefits may not be sufficient to adequately protect your dependents from your loss, even if you already have life insurance through your employer.   

The death benefit—the sum given to your beneficiaries in the event of your death—of group life insurance offered by many workplaces is typically one to two times your yearly pay. The general rule of thumb for life insurance, though, is that an individual requires coverage equal to around 10 times their annual salary. 

Supplemental life insurance can help in this situation. These policies offer peace of mind to those looking to increase their coverage and, frequently without requiring a medical exam, help give an additional layer of protection to your current life insurance provided by your employer. 

All the information you require regarding additional life insurance is provided by Business Yield in this article.

What is Supplemental Life Insurance?

Supplemental life insurance is a kind of life insurance that is available in addition to standard life insurance. If your current life insurance policy isn’t enough to take care of your family’s financial needs in the event of your passing, you can increase it. For items like funeral expenses or accidental death and dismemberment, supplemental life insurance coverage may be provided. It may also be expressed as an additional coverage amount.

If you work for a firm, your employer might include additional life insurance in the range of benefits it provides. To discover more about the specific policies offered by your employer, speak with your HR representative.

Examine your current plans to determine what is covered, how much you are paying, and how payouts operate before determining whether or not to apply for extra life insurance.

Moreover, your workplace might provide this kind of insurance for free, or at least at a modest cost, depending on where you work. It can also be purchased from private businesses. 

Generally speaking, these insurance policies serve as protection for you in case something untoward occurs in those specific areas of your life. They help you through the ups and downs of life by giving you financial support and, to some extent, emotional support as well.

How does supplemental life insurance work?

When it comes to supplemental life insurance, the employer or association determines how much coverage is provided for free and how much further coverage can be purchased. The sums are typically multiplied by salaries. For instance, you might be eligible for free coverage equivalent to one year’s pay. Then you could decide to pay for supplemental life insurance that is worth up to five times your earnings.

You can enroll when you have your yearly benefit enrollment period or if you go through a life event like having a new kid. You usually won’t need to have a medical examination or even respond to health-related inquiries. 

Additionally, the fact that most premium payments are made directly out of your paycheck might lessen the pain of the expense. Like with any life insurance, if you pass away while covered, your beneficiaries will get the policy’s cash value.

Supplemental life insurance coverage options

#1. Term. 

This is a temporary life insurance policy that covers you for a predetermined time, such as 10 or 20 years. Note that the younger you are, the less expensive it is to purchase. However, group term premiums often increase with time due to the fact that after the policy ends, you would need to renew (purchase another insurance) when you are older, which would result in a greater cost.

#2. Permanent. 

As long as your premium payments are made, this coverage remains in effect. Whole and universal life insurance are the most popular permanent policies. 

  • With universal life insurance, you can pay more or less depending on your budget (as long as you cover a certain amount that often increases each year), while 
  • Whole life insurance premium payments start out higher than the term but do not increase over time. 

It should be noted that if you can pay more upfront, you can build the cash value of the universal coverage, which you can then use to pay higher premiums in the future.

#3. Spouse/child. 

Additionally, depending on your plan, you might be able to purchase coverage for your spouse and/or children at a cheaper group rate.

Types of Supplemental Life Insurance

The four primary types of supplemental life insurance provided by employers are as follows:

#1. Supplemental employee life insurance: This insurance adds coverage to your policy.

#2. Voluntary spouse life insurance: This insurance covers the life of your spouse. Additionally, it sometimes covers your domestic partner.

#3. Supplemental child life insurance: This insurance covers eligible dependents.

#4. Supplemental accidental death and dismemberment insurance: This insurance pays out if you die or are seriously injured in an accident.

What is Employee Supplemental Life Insurance?

You are protected if your employer includes life insurance in the list of employee benefits. However, if something were to happen to you, the life insurance provided by your company might not be enough to meet your family’s needs. In that scenario, you might wish to think about supplemental life insurance, either through the plan offered by your workplace or acquired directly from another insurance provider. 

Note that

  • As an employee benefit, employers frequently offer life insurance, although it is frequently insufficient.
  • Some firms permit staff members to purchase extra life insurance on their own dime.
  • It’s still wise to look around because individual coverage from a different insurer can be less expensive.

What is Spouse Supplemental Life Insurance?

Supplemental Spouse Insurance is a policy you buy to add further protection for your spouse. This is sometimes referred to as supplemental life insurance for the spouse. Different sorts of policies, including term and whole life insurance, can be used with this kind of add-on.

Do you need supplemental life insurance?

Consider a supplemental life insurance policy if you have a family that you want to be sure is protected in the event that something were to happen to you.

In the end, supplemental life insurance can assist in filling the gap between the level of coverage you require and that provided by your employer.

Furthermore, if you have dependent children, a lot of remaining working years, and obligations to pay off, having up to 20 times your annual income in life insurance may make more sense. It may be time to look elsewhere, possibly at a family life insurance plan, if you total up your group life insurance coverage and the additional coverage you can get through your place of employment it is not enough.

How much life insurance do you need?

Fortunately, if you’re dissatisfied with the amount of life insurance your company provides, you can get more coverage on your own. Since your personal life insurance policy would follow you regardless of whether you moved jobs or careers, doing so might even be more advantageous.

However, don’t buy anything until you’ve compared all your options and done some shopping around.

The Best Supplemental Life Insurance

#1. Bestow

Without a medical exam, Bestow offers term life insurance plans, but prospective customers must first complete a health assessment. Unlike the majority of the firms in our review, you may apply for a policy and get a quote directly from the company’s website without using a separate agent. This is due to the fact that Bestow is an online life insurance company. Note that the North American Co. for Life and Health Insurance is responsible for issuing and managing its policies.

Policies: Term only

Coverage limits: Bestow offers insurance plans with limits of $50,000 to $1.5 million.

#2. Haven Life:

With an online application process, Haven Life provides term life insurance plans. The only free add-on that Haven provides is an expedited death benefit that is a part of both the Haven Term and Haven Simple policies. There are no add-ons you can purchase to tailor your coverage. Note that Haven Life is regarded as an insurance provider. Additionally, the insurance companies that issue the products it sells are MassMutual and C.M. Life Insurance Co., a division of MassMutual.

Policies: Term only

Coverage limits: Coverage options from $25,000 to $3 million are available via Haven Life.

#3. State Farm

State Farm received the best ratings for its ability to provide both term and permanent life insurance policies. Additionally, it provides a number of optional riders, including a waiver of the premium for disability and a rider for children’s terms. The Instant Answer Term and Guaranteed Issue Final Expense Insurance are two more that don’t demand a medical exam. To acquire a policy, you will need to work with an agent.

Policies: Term, whole life, final expense, universal, survivorship universal, and joint universal

Coverage limits: For its final expense policy, coverage begins at $10,000 and increases from there. Its term life insurance products start at $50,000 in coverage. The maximum coverage limitations for any given policy must be discussed with a State Farm agent.

#4. USAA

All U.S. citizens and permanent residents may apply for USAA’s life insurance plans; however, the majority of its coverage, such as vehicle or home insurance, is only available to active-duty military, veterans, and members of their immediate families. Therefore, military personnel can take advantage of various benefits of USAA life insurance plans, such as expedited application processing if you’re about to deploy and coverage in the event of the insured person’s death in the course of hostilities or due to an act of terrorism.

Policies: Term, universal, and whole life

Coverage limits: Term insurance from USAA ranges from $100,000 to $10 million for Level Term V coverage. While its universal policy can also offer coverage up to $10 million, its entire plans start at $2,000 and go up to that amount.

#5. Nationwide

Nationwide has many whole and universal life insurance products in addition to term life insurance. Long-term care, accidental death benefits, expedited death benefits, and conditional return of premium are some of the riders that can be added to your plans to make them more unique. For its term insurance, you can acquire a price and apply online, but for its permanent policies, you’ll need to consult with a Nationwide agent.

Policies: Term, whole, universal, variable universal, indexed universal, and survivorship indexed universal

Coverage limits: The coverage provided by Nationwide Insurance begins at $10,000 and increases from there. Contact a Nationwide Insurance representative to find out the maximum amount of coverage permitted by a policy.

#6. MassMutual

MassMutual offers a comprehensive range of insurance products. It can be changed to a permanent policy if you buy its term coverage from a MassMutual agent. Online term policy purchases are also an option, but they must be made via Haven Life, a MassMutual subsidiary, and they cannot be changed. Additionally, you can begin the claim submission procedure online.

Policies: Term, whole, universal, variable universal, and survivorship universal

Coverage limits: Note that the type of policy will determine the coverage limits. The outcome of the underwriting process will determine the upper limit for a number of its policies. A term insurance policy obtained through an agent has a set $10 million maximum level of coverage.

Can I cash out my supplemental life insurance?

Supplemental life insurance is often a term policy without a cash value component; therefore, you cannot typically cash it out.

Is it worth getting supplemental insurance? 

You should consider a supplemental life insurance policy if you have a family that you want to be sure is protected in the event that something were to happen to you.

However, it’s crucial to understand both what supplemental life insurance is and what it is not. Whether it’s a term or whole life policy, a supplemental life insurance policy should never replace a reliable life insurance policy.

Can you use supplemental life insurance while alive? 

Yes! Some life insurance policies let you use the policy’s living benefits to access a portion of your death payment. If you have been told that you have a terminal illness, need long-term care, or meet other criteria, you usually have this option.

What is the difference between supplemental and term life insurance? 

The primary distinction between supplemental life insurance and term life insurance is that supplemental life insurance may be provided through your employer, while term life insurance is provided by independent insurance companies. It’s crucial to keep in mind that, in most situations, supplemental insurance coverage expires if you leave your present workplace.

To help you comprehend why, here are a few major differences:

Supplemental Life Insurance:

  • It is provided via human resources by the company you work for.
  • It has certain coverage restrictions.
  • Typically, coverage expires when the job stops.

Term Life Insurance:

  • Options for flexible protection
  • Some call for a medical checkup.
  • It has more variation in coverage amounts.
  • Even if you lose your job, you keep your insurance.

What are the benefits of supplemental life insurance? 

Supplemental life insurance boosts your policy’s death benefit, adds protection in the event of an accident, provides support for end-of-life expenditures, or extends coverage to a spouse or child.

What are the drawbacks of supplemental life insurance?

#1. It may not be portable:

People don’t hold jobs for as long as they once did. Policies are frequently not portable, so you cannot continue to benefit from the cheaper coverage when you leave the company.

#2. You may pay more for insurance.

Because you think your supplemental insurance is sufficient, you might put off purchasing an individual life insurance policy for a while. However, this decision could end up costing you money in the long run. This is due to the fact that as you get older, the average cost of life insurance increases for individual plans.

#3. You could just have a few options.

There are often fewer options for customizing supplemental life insurance. Your options for a policy’s type and its potential riders are both subject to restrictions. 

However, you might occasionally be able to choose between term and permanent life insurance or add riders to a supplemental policy but don’t bank on it. It usually makes sense to buy privately if you want flexible coverage or something like a full life insurance policy with an investable cash value component.

#4. It may not be enough.

Your employer’s supplemental life insurance policy may not suit your demands, even though supplemental life insurance policies frequently provide more coverage than group life insurance policies. If that’s the case, you should still think about getting private coverage.

Why do people buy supplemental insurance? 

Additional health plans pay for costs like dentistry, vision, disability, and long-term care insurance that health insurance doesn’t cover. If you’re diagnosed with specific medical conditions, a supplemental policy like critical illness insurance may be able to provide you with a lump-sum payment.

At what age should you get supplemental insurance? 

Your 20s are the perfect decade to purchase affordable term life insurance coverage. In general, an insurer will provide you with the most reasonable rates if you’re younger and healthier because you pose less of a risk to them.

Do you have to pay taxes on supplemental life insurance? 

The payouts from a life insurance policy are often not taxed as income. This covers any cash value that has been built up in a permanent life insurance policy as well as the death benefit that is given to the beneficiary upon the death of the insured.

The same tax regulations apply to all types of life insurance policies, including supplemental life insurance, which is often an additional policy bought on top of an already-existing basic life insurance policy. The beneficiary will not often be taxed on the death benefit received.

Who can be beneficiaries of supplemental life insurance? 

Other alternatives for extra life insurance coverage besides raising your death benefit include:

  • Life insurance for a spouse or partner: Offers protection for a spouse or partner.
  • Children are covered under child life insurance.
  • Funeral and burial expenses might be covered through burial insurance.

Does supplemental life insurance end when you retire? 

Your group supplemental life insurance coverage will expire the day you switch to a less-than-full-time employment status if you stop working full-time. When you retire, the last day of the month in which you do so will mark the end of any spouse or child supplemental life insurance you may have chosen.

Does supplemental life insurance cover accidental death?

In addition to life insurance, supplemental life insurance policies may also cover burial, last expenses, accidental death, and dismemberment.

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