Do You Need Supplemental Life Insurance?


If you’re not familiar with the concept, supplemental life insurance is an additional life insurance coverage over and above your regular basic policy. Such policies are established to cover certain contingencies upon your death. They can be available to cover certain major expenses, and in doing so, they’ll preserve your basic life insurance to cover final expenses, lingering medical bills, and support for your family.

What is supplemental life insurance?

While general life insurance policies provide basic death benefits for your family, supplemental life insurance policies are aimed at handling specific expenses. In many cases (but not all) a supplemental life insurance policy may be set up to make payment directly to a certain creditor, rather than directly to beneficiaries of the deceased.

Supplemental life insurance policies are taken in addition to basic life insurance, and some providers of the coverage will even request proof of the existence of a primary life insurance policy.

Much like any other type of insurance, the cost of the coverage will depend upon the risk that you are trying to insure against, as well as your susceptibility to those risks. There may also be time limits on the length of the coverage.

Why you may want supplemental even if you already have life insurance

The basic reason why you would want to have supplemental life insurance – in addition to your regular life insurance coverage – is to cover very specific expenses for contingencies that may exist at the time of your death. Supplemental policies cover the extra expenses related to the specific situation, preserving funds in your basic life insurance to provide for your family’s support.

You may want to have such a policy if you’re dealing with a temporary financial entanglement, such as a large debt. By having the debt paid off through the supplemental policy, you will free up your regular life insurance policy to provide for your family.

What kinds of supplemental life insurance coverages are available?

There are virtually as many types of supplemental life insurance policies as you can imagine. Some of the more common include:

Mortgage life insurance. Sometimes called mortgage cancellation insurance, this kind of supplement is tied directly to your mortgage. In the event of your death, the supplement will payoff your mortgage, allowing your family to live in the home mortgage-free the rest of their lives. This will also provide maximum amount of funds available for their support from the primary life insurance policy.

These policies can be fairly complicated. The death benefit will match the amount of the outstanding mortgage obligation, and usually contains a provision that will see the death benefit decline as the mortgage loan amortizes to steadily lower levels. Eventually, the policy will terminate at roughly the time that the mortgage is paid in full. These can be expensive policies, not the least of which because the premium generally remains level, despite the fact that the death benefit steadily declines.

In addition, the death benefit on such a supplemental policy is typically paid directly to the mortgage holder, and not to your beneficiaries. In this way, the policy enforces its stated purpose – to payoff the mortgage, and not to be used for any other purpose.

Health specific life insurance. You can also purchase supplemental life insurance policies related to specific diseases. This will entitle you to payment of the benefit if your death is the result of certain illnesses, such as cancer, heart disease, or any other known terminal illness.

This can be an especially good policy to have if any such illnesses are genetically prevalent in your family history. Policies can help to offset the extra high costs of medical treatment related to terminal illnesses, particularly cancer. Once again, such a policy will help to preserve your basic life insurance policy to provide for the support of your family upon your death.

Accidental Death and Dismemberment (AD&D). This kind of supplemental life insurance pays a specific amount of money in the event of either accidental death, or the loss of a limb or eyesight. The policy pays a flat amount, and may contain a double indemnity provision in the event of death by accident. It will also pay a flat amount upon the loss of a limb or eye, in recognition of the fact that your ability to earn a living will be impaired after sustaining such a loss. In this way, an AD&D policy also provides living benefits.

An AD&D policy can be especially valuable if you work in a career field that is especially prone to accidents and injuries. Naturally, the premiums will be higher since the risks are greater if you work in a capacity that includes greater danger.

How you can buy supplemental life insurance

There are different ways that you can purchase a supplemental life insurance policy. Obtaining one through your employer is generally the least expensive way to buy, but this option is not available to all employees or to the self-employed.

You can also shop online to find providers for various policies that are available. But the problem in purchasing supplemental life insurance is that it is far more complicated than a typical life insurance policy. It will contain various contingencies that will limit the circumstances under which the death benefit will be available. It is probably best that you do not shop for this coverage on your own.

Absent employer-provided coverage, your best bet is to use a reputable insurance agent. He will be familiar with the complications of supplemental life insurance policies, as well as having knowledge of who the best providers are.