The need for life insurance is different at various times in any person’s life, but most policies have a fixed death benefit which cannot be adjusted to meet changing needs. The solution is to buy supplemental life insurance to provide extra coverage as needed, such as just after the purchase of a new home with a mortgage, the acquisition of a family business, or the birth of a new child.
Temporary term life insurance can provide extra protection when the benefits of permanent policies are not enough. Supplemental insurance is affordable, flexible, and can provide a family the necessary coverage for a short or long period of time.
Term Life Insurance
Term life insurance is the best type of supplemental policy when your basic coverage is inadequate to cover your current financial obligations and debts. Term life policies offer temporary insurance that covers an insured person for a specified term period, which can be anywhere from 3 months, 5 years, 10 years, 15, 20, 25, or 30 or more years.
Term insurance features the cheapest premiums of any type of life insurance and the rates remain fixed. The temporary nature of term life makes it more flexible than permanent policies and can be tailored to cover a person for only as long as supplemental coverage is needed.
What Is Supplemental Life Insurance?
Many people buy a permanent life insurance policy to cover current obligations when they are young and healthy, usually without kids, a mortgage, car loans, future college expenses, or business debts. If a person marries and has children, there is a major change in their financial obligations and their existing coverage may not provide enough protection, if they even have insurance at all. Supplemental life insurance kicks in when basic, current coverage runs out or hits the death benefit ceiling.
It also offer additional payouts to beneficiaries to cover higher costs related to final expenses, such as funeral or medical bills, as well as living expenses, like mortgage payments, credit card bills, and college tuition.
A temporary term life policy for a 20 or 30 year term will provide enough supplemental life insurance protection until children are financially dependent. The policy will then expire when the additional coverage is no longer needed. Moreover, individuals who already have life insurance may be able to prove insurability without having to undergo additional medical exams
Can I Get Insurance For My Mortgage?
Mortgage life insurance is available to cover the amount of the mortgage loan if a home-buyer dies prematurely. Mortgage insurance is a special type of coverage called decreasing term life insurance. Life insurance for mortgages is tailored to provide only enough coverage to pay off the mortgage loan, and both the death benefit and the premiums decrease over time. When the mortgage is paid in full, the mortgage life policy expires and no further premiums are due. Mortgage life insurance is a common form of supplemental life insurance.
For Business Owners
Businesses run on credit and, at times, the amount of outstanding debt may exceed life insurance coverage on the business owner. In order to protect investors and family members, supplemental policies to cover temporary large debts should be considered. Most business debts are short term and a term life policy for three months, six months, 1 year or 5 years, will cover the time until the debt is paid. Short-term policies are very cheap and provide extra protection as needed for businesses.
When Group Life Insurance Is Not Enough
Many Americans have group life insurance that is provided by their employers as part of a benefits package. For many workers, group policy limits are not enough to provide for their families if they should die prematurely.
An additional policy to make up any shortfall can ensure a family’s future without breaking the budget. Individuals should determine how much life insurance they need, deduct the amount of the group coverage and buy a supplemental policy for the remaining amount.
Coverage Through An Employer
Some employers allow employees to buy life insurance over the limits of the benefits package the company offers. The enrollment periods for additional coverage is limited, usually 30 days following a major event like a new job, marriage or birth of a child.
This type of protection is still part of a group plan and may have cheaper rates than privately purchased insurance. The disadvantage is that if a worker leaves his/her job, all their benefits are cancelled.
Even the most careful financial planning cannot foresee every event and a serious illness, loss of a job or other crisis can result in unexpected debts. An extra policy can protect families from financial disaster by providing enough money to pay off the debts if a wage earner dies unexpectedly, while leaving the primary coverage intact so financial dependents are able to preserve their lifestyle. Decreasing term life insurance may be just the right protection for these situations.
Universal and Whole Life Insurance
While universal and whole insurance are considered permanent kinds of coverage, when they are used as part of a long term financial plan, they can be an option for supplemental insurance. These permanent policies accrue a cash value over time, which can be redeemed when the extra protection is no longer necessary. When the cash value is redeemed, the policy is cancelled and voided.
Whole life and universal policies are not as cheap and flexible as term life insurance, but represent a secure, tax-deferred investment option while providing life protection. In other words, if you are looking for an insurance policy with an investment value, permanent coverage may be a good investment for your retirement needs.
Term and Permanent Life Insurance
If the need for extra life insurance is short term, permanent policies are not a good choice. For wage earners who are supplementing their basic life insurance for 20 or 30 years while their children are financially-dependent, whole and universal life insurance may represent the best coverage and rates.
When the coverage is no longer necessary, the policyholder can redeem the cash value to use toward college tuition or other expenses. If desired, the policyholder can keep the policy as an investment for retirement.
Supplemental life insurance helps provide protection when people have greater financial needs, but allows individuals to have the flexibility to change the amount of their insurance as their needs change.
Supplemental coverage also allows policyholders to enjoy the advantages of different types of life insurance policies while minimizing the disadvantages, permitting policyholders to complement the pros and cons of term life insurance with the pros and cons of permanent or whole life insurance.
Anyone who is not sure they have enough insurance coverage should consider buying a supplemental policy to give them peace of mind in case of a tragedy.