Supplemental Life Insurance: Do You Need It?
If you have a life insurance policy but you’ve debated whether you should get more, then you’re wondering if you need supplemental life insurance.
It’s one of those phrases, supplemental life insurance, that we all hear about over the years – and we may not have any understanding of what it is and why it exists.
But, supplemental life insurance is important, and if you’re underinsured, you just may need it.
What is Supplemental Life Insurance?
Supplemental life insurance is additional life insurance that may be offered through your employer.
People buy it in order to complement the life insurance coverage that they already have.
Maybe one day it hits you that while you have a pretty good life insurance policy, you might suddenly wonder how your family would pay for your funeral.
- Will paying for your funeral take money away from your life insurance policy that was going to go toward paying the house and college?
- Will your spouse and kids still financially struggle despite the fact that you have a life insurance policy?
If you decided you’d better buy burial insurance, insurance designed to pay for funeral costs, that would be supplemental insurance.
Or, maybe you have a dangerous job or an active imagination or you just want to play it completely safe, and you start thinking, “What if I were injured on the job, and I could no longer work?” Then you might buy an accidental death and dismemberment (AD&D) insurance policy, also a form of supplemental life insurance.
Or you might picture something bad happening, where you aren’t killed or disabled, but you are in a coma for months. That’s where accidental death and personal loan insurance, another type of supplemental life insurance, could help out your family by paying for the sky-high hospital bills.
If you’ve made it this far in life and hadn’t been sure what supplemental life insurance is, it’s understandable.
Knowing what it is and asking yourself questions like, “Do I need supplemental life insurance?” means thinking about an awfully grim future.
Do You Need Supplemental Life Insurance?
Maybe. Maybe not.
But the most important thing when buying life insurance is that you make sure you’re getting the life insurance policy that’s right for you.
Some life insurance policies are going to be redundant and not necessary.
Take an accidental death and dismemberment (AD&D) insurance policy. If you already have a group life insurance policy or any type of life insurance, it covers death – accidental or natural causes. So the AD&D may offer up more money to your family, but it isn’t as if they weren’t already going to see money in the event of your death.
If you want to get AD&D for the dismemberment part, just in case you would lose a leg or an eye, and not be able to work, well, you can do that. But if you’re concerned about being permanently injured and unable to work, long-term disability insurance may be a better option.
Before you buy any insurance policy, supplemental or not, you’ll want to read the fine print to see what’s covered and what isn’t.
There are a lot of different types of supplemental life insurance (and insurance in general) policies, and odds are, while you may be better off with more coverage than you already have, you probably don’t need every single type.
Where to Buy Supplemental Life Insurance
Although you can certainly purchase it directly from insurance agencies or work with an insurance agent, many people buy supplemental life insurance from their employer.
Why?
Many employers already offer their workers group life insurance.
If you’re now thinking, “What’s group life insurance?”, that’s easy to answer. Group life insurance covers a group of people, like all of the employees at a company.
According to the Society of Human Resource Management, group life insurance as a benefit is offered by 85 percent of companies. So if you have an employer, you may well have it.
And group life insurance is a great benefit.
That said:
Uou may need to increase the amount of coverage your family is receiving.
Why Consider Supplemental Life Insurance
Unfortunately, there are a lot of reasons why you might need supplemental life insurance, even if you have great group life insurance.
Group life insurance isn’t always portable
That is, if you leave your job, will you still have it? Of course, maybe you’ll go from one great employer to another, who also offers great group life insurance. But what if your next employer doesn’t offer it? What if you’re between jobs for a time, and the unthinkable happens then? If you only have a group life insurance policy that exists with your place of employment, then you have an argument for buying supplemental life insurance.
Now all of that said, don’t assume that your group life insurance policy isn’t something you can keep permanently. It may be, or there may be an option that allows you to concert the group life policy to an individual life insurance policy. You’ll want to check the fine print.
The amount may not be enough, period
Your idea of what your family will need if you unexpectedly exit, and what your employer thinks you would need, may not match up.
Maybe your group life insurance payout is $100,000, which will be a nice sum for your family, but maybe you were hoping to leave them half a million, or a million, or more, if something terrible would happen to you.
You may want to get life insurance for your spouse
If your group life insurance only covers you and not a spouse’s death, that’s a good argument for getting additional coverage.
Even if your spouse isn’t collecting a paycheck, if his or her early demise would mean you would struggle to both work and take care of your kids, and you don’t think you could afford childcare, then your spouse should probably have coverage.
Cost
It varies, and it’s impossible to pinpoint a dollar amount.
The monthly premium is determined by factors such as your age, your life expectancy and your past and current health.
In other words, you’ll likely be taking a medical exam. If you’re young and healthy, you’re going to get the best rates. If your body is akin to a beat-up vehicle in a scrap heap, your rates won’t be so hot.
It also depends on factors like:
- What type of life insurance are you getting? Whole or term?
- Are you leaving behind a million dollars or a more modest $250,000?
You might be paying a couple hundred bucks a month if you’re 30, or quite a bit less, or if you’re twice that age, you could be paying out a couple thousand a month, depending on what the policy looks like.
So, really, the best way to find out how much a supplemental life insurance policy will cost you is to talk to your employer or an insurance agent.
Tips Regarding Supplemental Life Insurance
Buying younger is better
Your rates always go up, every year, with insurance. It’s been estimated that your premium will increase about 8 to 10 percent every year.
It’s understandable if you’re, say, 23 years old, and you aren’t married and have no kids, and you don’t want to get life insurance. Getting those low rates would be nice, but for years, instead, you could be putting that money into a savings account or a retirement fund.
But if you do marry down the road, and if you think you’re going to have children, you might as well get your life insurance and lock in your monthly premiums now – and not, say, five years from now.
Because that’s the thing -- your rates won’t change. If you get life insurance at age 23, you’ll pay the same premium when you’re 42. But if you’re 42 when you buy life insurance for the first time, you won’t pay what a 23-year-old will pay. You’ll pay whatever your insurer determines a 42-year-old in your physical condition should pay.
Set up your insurance on automatic withdrawal
If you have group life insurance, your employer is probably making payments on your behalf, and you don’t have to think about it.
If you buy supplemental life insurance, that’s a premium you are paying. It’s also a payment you’d do well to put on automatic withdrawal, so the money is drawn every month from your checking account or credit card.
Sure:
Some people understandably aren’t crazy about putting every bill on automatic withdrawal.
Maybe you know that you won’t always have the money to pay your mortgage on the 1st of the month, and so you pay that one individually. Same with some other bills, perhaps, like your cable and electric.
But your life insurance is one that you probably should set on automatic withdrawal, if you can.
You don’t want to pay for 10 years, miss a payment, forget about it for a while and then get a letter saying that your insurance has been canceled.
Then, not only are you not insured, to get coverage again, you’ll have to take another exam and pay even higher rates.
There are different kinds of life insurance
In other words, are you going to get term life insurance, whole life insurance or universal life insurance?
Term life is life insurance that covers a certain period, like 20 or 30 years.
When those 20 or 30 years end, unless you decide to renew the policy, it ends.
People do this because – well, if you get a 30-year policy, your kids have presumably grown up by then and are on their own.
If you checked out now, it would be terribly sad, but if your kids have a good job and you have enough saved for your spouse to make it without your paychecks all right, then you probably can stop paying for life insurance.
Whole life insurance lasts until you die. You can also take out loans on the policy before that dreaded day occurs since it builds up a cash value over the years. But as you can imagine, whole life insurance premiums are always a lot higher than term life.
Universal life insurance is similar to whole life insurance but it has some additional features.
For instance, down the road, if you take and pass another medical exam. you can increase the death benefit.
Bottom Line
If you’re thinking about supplemental life insurance, then there’s a good chance that you do need it.
After all, if you’re worried that your family would have a tough time getting by without the income you bring in, then you should probably listen to your gut.
The world is full of sad stories of people dying and not having purchased enough life insurance.
Your checking out too soon would be sad enough. The last thing you want to imagine is your friends and family members someday discussing your untimely demise and lack of life insurance as a cautionary tale.
