Imagine landing that fantastic new job, brimming with excitement on your first day. Dressed in a sleek suit, carrying a stylish briefcase, you stroll into the office—only to find yourself sitting through a day-long orientation. Often, this is when you face various choices, including whether to invest in supplemental life insurance.
What is Supplemental Life Insurance?
Supplemental life insurance acts as an additional layer of protection beyond the group life insurance provided by your employer. It can be acquired through workplace benefits or purchased privately. In this article, we’ll delve into the details of supplemental life insurance and assess whether it’s a worthwhile investment.
Employer-Provided Supplemental Life Insurance
Some employers offer both term life insurance and supplemental life insurance. The term life insurance from your employer typically resembles regular term life insurance, albeit potentially more cost-effective due to the group policy’s lower risk for the company when covering a larger pool of individuals.
In a 2014 survey of U.S. companies, about 94% provided some form of life insurance to employees, tailoring these additional benefits based on what employees value most.
Supplemental life insurance often mirrors group term life insurance but may have limitations based on the specific policy. Here are some common terms:
- Accidental Death and Dismemberment (AD&D): Some policies focus solely on AD&D, providing coverage only if your death results from an accident. However, certain policies may also pay benefits for significant accidents that don’t lead to death, such as blindness, deafness, or loss of limb function.
- Burial Insurance: Specific policies are strictly designed to cover funeral and burial service expenses in the event of accidental death. Typically, these policies offer compensation ranging from $5,000 to $10,000.
- Non-Portable: Any life insurance policy purchased through an employer might be non-portable, meaning you can’t carry it with you when changing employers or upon retirement. Later, we’ll discuss why this could be a significant concern for many consumers.
- Spouse or Domestic Partner Insurance: Some employers permit employees to purchase supplemental life insurance for their spouses or domestic partners. These policies may complement your existing term life insurance policy, possibly subject to certain restrictions.
The terms offered by your employer will vary based on the plan they choose. Therefore, a thorough review of these limitations is crucial before deciding to purchase a policy.
Private Supplemental Life Insurance
Similar to obtaining this insurance through an employer, you can also purchase supplemental life insurance privately. In this scenario, it’s akin to buying private term life insurance. You only need to compare offers and select the most favorable deal before privately acquiring the insurance.
Private supplemental life insurance may share similarities with the first two limitations mentioned above. You might have the option to purchase AD&D insurance or burial insurance privately. In fact, when purchasing term life insurance, you may be able to add these policies as supplements to your original term life insurance policy.
The primary advantage of private supplemental life insurance lies in its portability. As long as you keep paying the premiums, the coverage remains intact. Additionally, you can purchase this insurance for your spouse or domestic partner in their name.
In some cases, private supplemental insurance may be more cost-effective. For instance, if you are young and in good health, any type of life insurance may be relatively inexpensive. Thus, it’s worth checking whether private policies offer a more economical option before opting for employer-provided insurance.
**Note on Portability: **The issue of non-portable employer-provided term life and supplemental life insurance can be a real point of contention. In essence, for this reason alone, relying solely on employer insurance might not be advisable.
Consider this scenario: You start working for a company right out of college, young and healthy. Despite employer-provided insurance being more affordable, you decide to purchase a $50,000 term life insurance policy and a $10,000 burial policy privately.
Over the next decade, you steadily climb the corporate ladder. Simultaneously, your weight increases, you become less active, and you may even develop chronic or acute health issues. Then, you decide to leave the company to start your venture.
Now, you realize you must replace the life insurance. With a house and family in the picture, you may need more coverage than a decade ago. However, as you’re older and less healthy, your term life insurance will be significantly more expensive.
In such a scenario, if you’ve been paying for your private health insurance all along, even knowing it’s non-portable, you might be better off. If your employer’s insurance is exceptionally affordable, joining is fine, but be aware you might need to supplement it with private insurance to avoid paying more for the same coverage when changing jobs.
Consider exploring reputable life insurance companies operating in your area when looking to purchase privately.
Is Supplemental Life Insurance Worth the Cost?
Now that you understand supplemental life insurance, determining its worth remains a personal decision. Conduct due diligence, ensuring you comprehend the policy and its costs. Then, compare offerings to see if you can secure a better deal on the private market.
If you’re solely shopping in the private market, contemplate incorporating supplemental insurance into your term life insurance policy. In some cases, adding accelerated burial benefits or AD&D privately to your existing policy might be more cost-effective than purchasing them separately.
Regardless, ensure you know how your supplemental life insurance policy fits into your overall life insurance plan before making a purchase.