Do you feel like your employer-supplied life insurance policy is not enough to cover your family’s needs? If so, there’s an additional life insurance option that may interest you: it’s called supplemental life insurance. Unlike a standalone policy, supplemental life insurance is an additional policy meant to give you a little extra cushion.
Reasons to Get Supplemental Life Insurance
One of the most common reasons people seek out supplemental life insurance is because their employer provides life insurance, but not enough to cover their family’s needs. Many corporate employers offer employees life insurance – but it’s typically only equivalent to a year’s salary.
This makes sense… sort of. The idea is that your dependents will have one year of financial coverage in your absence.
But the reality is that the same amount of income will most likely not be sufficient for the year due to added expenses and changing circumstances. First of all, it will generally cost at least several thousand dollars (up to $20,000, in some cases) to cover final arrangements, such as burial and funeral services.
Next, the spending habits of your dependents might shift as they adjust to your absence. Additionally, a working spouse might need to leave their job due to mental health challenges or because they need to be at home with the kids. Likewise, one year of income is not enough for a homemaking spouse used to a single income to get situated for life.
Employee Supplemental Life Insurance
As a result of the situation mentioned above, many employers will offer an employee supplemental life insurance plan. This type of plan often provides additional coverage in increments of your salary. For example, let’s say your salary is $50,000 per year and your employer’s life insurance coverage has a death benefit that is the same amount. A supplemental plan may increase that amount to $100,000, $150,000, or $200,000 (and up), in increments of your salary.
Additionally, supplemental insurance may include the opportunity to add an insurance rider, which is essentially an extra agreement. This agreement allows you to modify your contract to get benefits that the contract doesn’t originally state. For example, an accelerated death benefit (ADB) rider allows you to collect a lump sum before death if you have a terminal illness, which is impossible with regular life insurance. In the same way, a supplemental life insurance rider allows you to add additional coverage to your life insurance policy.
Different Types of Supplemental Life Insurance
Most employers offer one or more of these four main types of supplemental life insurance.
- Supplemental employee life insurance – This is a general rider that adds extra coverage to your own policy.
- Supplemental spouse life insurance – This insurance has a more specific purpose, as it is designed to cover the life of your spouse or domestic partner.
- Supplemental child life insurance – Similar to supplemental spouse life insurance, supplemental child life insurance is extra coverage specifically for your dependents (usually age 0-18).
- Supplemental accidental death and dismemberment insurance – If you work a dangerous job, this is an important rider to add to your policy. It issues a lump sum if you die or are seriously injured in an accident.
One thing to keep in mind as you consider employer-sponsored supplemental life insurance policies and riders is that if you leave or lose your job, then you also lose your life insurance policy.
How much life insurance do I need?
As you consider whether you need a supplemental life insurance policy or rider, you must ask yourself if it is really worth it and consider the following factors.
- Age
- Health status
- Parental caregiving
- Having more children
- Buying a home
As a rule of thumb, adequate coverage ranges from 10 to 15x your annual income. You also need to consider factors such as your debt, whether you want to pay for your children’s education, and any assets that require regular payments. As you experience major changes in life, you need to revisit your life insurance policies to see if the amount of coverage you will receive matches up to (or exceeds) your calculations.
Do I need supplemental life insurance?
It seems simple enough to say that if your calculations exceed your coverage, you should get supplemental life insurance. But we can break it down even further for you. There are three distinct and simple instances where supplemental life insurance is the answer.
- If your workplace (or personal) policy provides less than 10x your annual income.
- If you have your own policy but changing it or getting a new one would be impossible due to finances or medical ineligibility.
- If your work-provided (or personal) policy does not cover as many things as you’d like (accelerated death benefit, long-term care, etc.), then you can add supplemental coverage in place of another policy or rider.
If you have questions about supplemental life insurance or would like a quote for affordable supplemental insurance, call today! The experienced life insurance advisors at Principled Life are here to help.
