Supplemental life insurance, commonly called voluntary life insurance, is an extra layer of protection offered in addition to your company’s group policy.
Many employers offer group life insurance in employee benefits packages to attract top talent and help boost their employee’s financial security. Employees may either get these accessible in their benefits packages or pay very low premiums.
However, group life insurance doesn’t often offer the coverage and features necessary for employees to handle their life insurance needs fully. Getting a supplemental life insurance policy through the employer or outside work can help address these problems.
This article will explore a few situations that may warrant purchasing a supplemental life insurance policy.
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Few Situations That May Warrant Purchasing a Supplemental Life Insurance Policy.
Some situations that may demand you purchase a Supplemental Life Insurance policy include;
1. Your employer’s group life insurance doesn’t offer enough coverage
Many employers cap group life insurance coverage death benefits at $50,000 for tax reasons. That’s less than one year of the median household income, according to 2021 U.S. Census data. As a result, employer group life insurance won’t be enough for anyone that needs to cover more than final expenses, such as funeral costs.
For example, people may need to ensure their loved ones can pay off their mortgage, cover their child’s college tuition, and set aside savings. Getting supplemental life insurance can help protect against this shortfall.
2. You have dependents
The typical group life insurance policy is rarely enough to cover dependents for very long. If it’s limited to $50,000, that may only be enough to replace your yearly income or potentially less if your beneficiaries have to pay off debts.
Even if you have a partner that works, their single income may not be enough to provide comfortably for other dependents, such as children. You can solve these issues by purchasing supplemental life insurance.
Many experts recommend having a death benefit worth at least 10 times your annual salary. So, if you earn $60,000 per year, the recommendation would be to get a $600,000 death benefit. This will give your loved ones substantial time to live comfortably in your absence and plan for their financial future.
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3. You plan on changing jobs or careers
Your workplace-provided life insurance policy only pays out if you pass away while employed with your current employer. You can’t take your approach if you move to a new job. This can cause you to lose coverage at a critical time. Supplemental life insurance purchased through your employer may lapse as well.
However, getting a supplemental life insurance policy outside your job allows you to remain covered wherever you go. Your policy remains active for its entire term as long you continue paying your premiums.
4. You have complex financial needs
Retirement accounts, like 401(k)s, also have a spot in benefits packages. But like group life insurance, they may not meet all your financial needs.
If you’ve maxed your retirement account or hit your matching bonus, need another investment vehicle, and need to increase your life insurance coverage, a supplemental permanent life insurance policy outside work could be your solution.
These policies offer substantial lifelong coverage and a cash value growth component to build more wealth. Some of each premium goes into the cash value and grows tax-deferred at a specific rate based on the policy type.
You can withdraw from your cash value or borrow against it with favourable terms once you accumulate enough. This offers a more flexible wealth source to tap into before or after retirement. For example, it could provide a source of income to help you retire early.
Alternatively, after retirement, it could help you live a better lifestyle and provide more money to your heirs. And if you ever surrender your policy, you get the full cash value minus surrender charges.
The bottom line
Group life insurance can be a fantastic benefit. But these policies seldom meet employee needs. Employers often cap death benefits at $50,000, which isn’t large enough to meet most coverage needs — especially for people with dependents, such as families.
They don’t follow you if you leave your job and don’t offer additional wealth-building features for those with more complex financial plans.
Supplemental life insurance can help address these issues by allowing you to purchase hundreds of thousands of dollars in additional death benefits. The policy will stay with you as long as you keep up on premiums, and permanent life insurance coverage helps you build wealth through the cash value component.
As you look for supplemental life insurance policies, don’t forget to gather multiple quotes before choosing a policy. This helps you compare quotes to find the lowest rates on the supplemental coverage you need.
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Term and permanent life insurance are the two main types available. Permanent life insurance covers you for the rest of your life, whereas term life insurance only lasts for a specific period of time (often 10 to 30 years).
Voluntary life insurance is a type of life insurance provided by their employers. Most of the time, employees will pay the required premiums on time to retain the coverage in effect. It might occasionally be taken straight out of the worker’s paycheck.
If you pass away while the coverage is in place from the majority of reasons, Choices’ basic life insurance coverage provides payouts to your beneficiary(ies). By providing compensation in the event that your death results from accidental causes, accidental death and dismemberment (AD&D) insurance coverage gives affordable accidental death protection.
By purchasing life insurance, you can shield your spouse and kids from the potentially catastrophic financial losses that could arise in the event of your passing. It offers financial stability, aids in debt repayment, assists in covering living expenditures, and aids in covering any last or medical costs.
Life insurance underwriting can be divided into three categories:
i. Comprehensive life insurance.
ii. Simplified life insurance issues.
iii. Life insurance with guaranteed issue.