Now that you know what supplemental life insurance is, you need to determine whether or not it’s worth the cost. This depends on a variety of factors, including how much insurance you already have, the limitations, and the costs.
Your current coverage
Buying life insurance should be a holistic experience. That is, you don’t want to look at all of your policies separately. You need to look at the policies as a whole, and total up your life insurance coverage.
It’s a good idea before you go to your enrollment meeting or shop for private supplemental life insurance to look at your current coverage. Determining exactly how much life insurance to get can be tough. One rule of thumb says to have ten times your annual salary in coverage. But that may be too much or not enough, depending on your circumstances. Read this article for a more thorough discussion of this issue.
If your current coverage is enough or even more than enough, paying more for supplemental life insurance may not make sense. You could, instead, put that premium amount towards saving for retirement or other financial goals.
Even if the premium is small, you shouldn’t pay for insurance you won’t need.
But if your current insurance isn’t quite enough, or if you’d be comfortable with more coverage, you might want supplemental life insurance.
This type of insurance can also be helpful for a couple of specific situations:
Faster payout for burial insurance. Your $500,000 term life insurance policy can take a few weeks to pay out to your family. In the meantime if you passed away, they’d have to deal with your burial costs immediately. Some burial insurance has a built-in accelerator clause, so the funds would become available really quickly. That can give you extra peace of mind, even if you’re comfortable with your current term policy.
AD&D pays out even if you don’t pass away. If your employer offers an Accidental Death and Dismemberment option, it can be worthwhile even if you have plenty of insurance. Be sure to read the fine print. But this type of policy could pay out even if you don’t pass away, which can make it very valuable. Of course, a long-term disability program could do the same thing. So balance the costs and benefits when deciding on your coverage.
What if you don’t have enough life insurance coverage? A supplemental insurance policy can help. But you shouldn’t rely on this policy too heavily, again, because of the portability issue. But you can go ahead and opt in to this policy, and then shop around later for the proper amount of term life insurance coverage.
It’s absolutely essential that you understand all of the policy’s limitations when looking at supplemental life insurance. This is true for any insurance policy, of course. But it could be even more crucial for this type of policy, which can have so many clauses and exceptions.
The bottom line is that the less likely you are to need insurance, the less you should pay for it. If your AD&D policy pays out in exactly two types of accidents that you’re never likely to experience, it’s probably not worth the cost. But if the policy covers a broad variety of accidents and issues, it could be worth your while.
I’ll mention just one more time the portability issue, too. With any non-portable life insurance policy, be sure that you have backup or at least a plan for ensuring you’re covered properly if you move to new employment.
Before you sign up for any employer life insurance plans, shop around to see what you can get on your own. Again, if you’re young and healthy, you may get better coverage at a lower cost than you’ll get through your group policy. This is somewhat unusual unless you’re in excellent health, but it can happen.
Even if the private coverage you find is slightly more expensive, it can be worth a few extra bucks a month. You’ll get portable coverage that you know will last for the entire life insurance term.
For older adults, or those who are less healthy, the employer-based coverage is likely to be the cheapest option around. But, still, if a limited supplemental life insurance policy is pretty expensive, it may not be worth it. Just balance the monthly cost against your needs and the likelihood that you’ll use such a policy.
Remember, if this is an optional benefit through your employer, you’ll probably reduce your paycheck by the amount of the premium. So if it makes more sense to go with a private policy, you get money back in your paycheck to pay for the insurance on your own.
The Bottom Line
So now you know what supplemental life insurance is, but it’s still up to you to decide if it’s worth the cost. Just do your due diligence. Make sure you understand the policy you’re being offered and its costs. Then, shop around to see if you can do better on the private market.
If you’re exclusively shopping on the private market, consider adding supplemental insurance to your term life insurance policy. In some cases, you can add accelerated burial benefits or an AD&D rider to your existing policy, and this may be cheaper than purchasing it separately.
Either way, though, be sure you know