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21/04/2017

Term Life Insurance Versus Supplemental Insurance - What you should know

Term life insurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.


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Employers as a rule, see to it that their employees are provided with a term life insurance coverage, and the amount of coverage is commonly some multiple of the employee's annual salary. However, sometimes the amount of coverage that a company offers is insufficient, particularly if the employee has a large family or big financial liabilities. In those situations, supplemental life insurance can serve as a link in the shortfall in coverage and proffer added protection.

Term Life Insurance Versus Supplemental Insurance


The Insufficiency Of Term Life Insurance

Most consumers purchase one of two types of coverage options — term life insurance or whole-life insurance. With term life insurance, the insured receives coverage for a specified period, which is known as the term of the insurance. Both employers and private companies offer term insurance. Since the coverage only applies during a set period, term life insurance generally costs less than whole-life insurance, which covers an individual for his or her entire life.
One major disadvantage associated with term life insurance is that most policyholders rely on their employer for this insurance, and as a result, they don't have enough coverage. A 2015 study by the Life Insurance and Market Research Association (LIMRA) found that 65% of employees with employer-sponsored group life insurance believe that they need more insurance than the employer provides. A typical employer plan provides coverage equal to one to two times the employee's annual salary. For example, an employee making $60,000 annually may receive a $120,000 policy at no cost. For a single employee or an employee with one dependent, this may be adequate. However, an employee with a bigger family may require several times that amount of coverage to take care of a spouse or children if he or she unexpectedly dies. Supplemental insurance can fill in the gaps of an employer-sponsored plan.


Whole Life Is Expensive

Whole-life policies present similar coverage shortfall problems. Most whole-life policies cover individuals for their lifetime and stores up a cash value, which allows the insured to cash out the policy if needed. However, since whole-life insurance offers more complete coverage, it costs much more than term life insurance. For an individual with a large family, obtaining the right amount of whole-life insurance may be prohibitively expensive. Generally, purchasing supplemental term insurance offers a more cost-effective option.



Limitations Of Employer Supplemental Insurance

Consumers often purchase supplemental insurance through their employers. One advantage of doing so is that the employee circumvents the medical exam requirements that a private insurer would require. However, employer-sponsored supplemental insurance may have limitations, so it is important to research the coverage carefully.
First, the coverage may be a form of accidental death and dismemberment (AD&D) insurance, which only pays the beneficiaries if the employee dies from an accident or loses a limb, hearing or sight as a result of an accident.
Secondly, the employer-sponsored coverage may be a form of a burial insurance policy. In this case, the insurance only covers the funeral and burial costs of the employee and may have a limit of between $5,000 and $10,000.
Finally, and perhaps most importantly, most employer-sponsored supplemental plans are not portable. Therefore, if the employee leaves his or her job voluntarily or is terminated, the coverage is terminated, and that person would have to apply for coverage at a new job, or through a private company.


Private Supplemental Insurance Provides Solution

Some employers provide employees with the option to purchase supplemental life insurance that increases coverage and does not have stipulations, such as AD&D or burial insurance. This option may be ideal for employees with larger families, though such insurance usually lacks the portability of private insurance. Since the average employee remains with an employer for less than five years, purchasing supplemental insurance through a private carrier may be a much more preferable option. Employees can ascertain how much they require above the employer-provided amount and purchase the right amount of coverage. If employees leave their company, they would keep the supplemental coverage. Furthermore, if life situations change for employees, then they can adjust their amount of coverage accordingly.

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