From a product description standpoint, whoever named supplemental life insurance was having a good day.
This type of coverage is great for those who feel there are gaps in their current life insurance coverage. Let me break it down for you.
What is supplemental life insurance?
Supplemental life insurance is most commonly offered through an employer or membership organization such as a labor union. Many employers offer a base level of group life insurance policy coverage for employees at a low cost or no cost, often with no medical exam required. The amount of coverage is typically determined by a percent of the employee’s salary.
Some employee benefits packages will provide options for employees (at their expense) who want extra coverage, such as for children. This coverage takes many forms, allowing the employee to provide additional peace of mind for their family. Additional life insurance through an employer is often less expensive because the company is able to negotiate for the entire employee base.
Here are a few examples of how supplemental life insurance can be used:
- Burial Expenses. Sometimes called final expense insurance, this supplemental coverage can take care of funeral costs or cremation expenses and any other expenses left after your death.
- Income Replacement for Disability. This can provide additional coverage for both short- and long-term needs beyond coverage provided by the employer. It can be used for living expenses and other important expenses.
- Mortgage Protection. It can cover the outstanding balance on your mortgage, taking that stressful burden off your loved ones.
- Education Costs for Children. This is always a big concern with families, and supplemental insurance is a good option to take care of this.
These are just a few of the examples where supplemental life insurance can provide important coverage for your family and loved ones.
Can I purchase supplemental life insurance outside of my employer?
That’s an emphatic yes! In fact, I would recommend doing that rather than purchasing more insurance from your employer. It’s not uncommon for life insurance through an employer to have restrictions, including that it may be canceled if you leave the company. Ouch!
Here are several options you can purchase outside of your employer-sponsored plan:
- Individual Term or Permanent Life Policies. A term life insurance policy is for a specific period of time, while permanent life insurance encompasses a wide range of types that cover you permanently for your entire life. Whole life insurance and universal life are forms of permanent life insurance. Purchase this from a licensed insurance agent. Read more about the different types of life insurance.
- Riders or Add-On Policies. Insurance companies have gotten very creative with riders. They can be added to your primary life policy to cover specific needs such as accidental death and dismemberment (AD&D), long-term care, and many others.
Here’s a short and sweet way to look at it. Buying supplemental life insurance through your employer could be less expensive, but I believe that is trumped by the insurance not going with you if you change jobs and having far fewer options on the type of policy you can buy.
That seems like a pretty compelling argument to me.
How much supplemental life insurance coverage should I buy?
The rubber now meets the road. While there are many theories on the best way to determine how much life insurance to buy, I recommend you take the time to accurately determine how much you need beyond your current life insurance coverage.
Here are three considerations I think are important:
- Income Replacement. Determine the standard of living you want for your family and loved ones. A life insurance company will recommend you purchase five to 10 times your annual salary, but I would urge you to dig a little deeper and come up with a more specific calculation based on your family’s needs.
- Debts and Financial Obligations. Add up outstanding debts such as mortgages, auto loans, credit cards, and personal loans. I recommend having enough life insurance to pay off all debts. Also, consider future obligations like education and dependent care.
- Future Wishing. I know this one sounds a little corny, but it’s part of your decision on the lifestyle you want for your family. Maybe there’s a new business being discussed. Or, there are specific retirement plans that may need additional funding. The life insurance death benefit payout can fund all these.
And don’t forget to figure in the cost of living and inflation. Those seemingly small changes can have huge impacts over decades
In conclusion, any life insurance you buy, whether through your company or otherwise, is an investment in peace of mind for your family. Be thoughtful and always look to get advice from a professional insurance agent or financial planner.
