Supplemental Life Insurance (SLI) is a specific type of Life Insurance that is often offered by an employer to their employees as a part of a social package. Obviously, most employers would choose the cheapest type of Insurance for their workers just to save funds. For some people, SLI may be enough, but the majority of workers in America find SLI as not reliable enough in terms of the list of perils covered and the death benefit amount.
Nevertheless, SLI is still better than no Life Insurance at all, so if you consider accepting an SLI from your employer, make sure the terms are suitable for you. Below we will take a closer look at all cons and pitfalls of a Supplemental Life Insurance to make it easier for you to choose the best option.
How much can you get on SLI?
Are you single or having a family to provide to? Depending on your status your requirements about the death benefit in the policy will differ significantly.
Usually, SLI policy offers a death benefit of two person’s yearly salary. Thus, if you earn, let’s say. A $45.000 a year, your death benefit will be $90.000. For many, this amount if not enough to cover all needs, especially if a policyholder left a family with one or several dependants.
What does Supplemental Life Insurance cover?
There are several sub-types of Supplemental Life Insurance policies. Most often, your SLI offered by your employer is simply an Accidental Death and Dismemberment (AD&D) policy with limited options. That means that benefits could be paid only in a case of death of a policyholder. Moreover, the death has to be a result of an accident only, and the list of accidents is always included in the policy.
You may be offered another type of SLI which could be, in fact, is a burial policy. The coverage will be not more than $5.000 or $10.000, just enough for burial expenses. In this case the family of a policyholder has no additional means for living, so for the majority that’s not enough to stick to this only policy, so they acquire an additional Life Insurance policy.
It’s crucial to make sure you can define the death benefit in the policy on your own. If you’ll want a higher benefit, your premiums will be raised as well. For instance, statistically, if a policyholder has a family with three dependents (usually, it’s one spouse and two children), the death benefit is set at the $500.000 level.
Pitfalls of SLI
Actually, there are really many pitfalls of Supplemental Life Insurance and here are the most important ones you should be aware of:
- The coverage may be not enough for your needs
If your SLI policy is, in fact, a burial policy, your family will only get enough money to cover your final expenses and nothing more. If it’s a sort of an AD&D policy, you (or your family) will likely get two yearly salaries as a “death benefit”. If it’s not enough for your dependants – get an additional policy.
- Your policy may prohibit buying an additional Life Insurance
Make sure the policy you are offered allows you to buy an additional Life Insurance that will cover the whole list or perils with the death benefit that will suit your family needs.
- You cannot keep it when switching the job
Some types of SLI policies are not portable, means you can’t have the same policy you’ve paid premiums for if you change your employer. If that was the part of your ex-employer’s package for you, you might lose the policy. However, some types are portable, so make sure you opt for the right type of SLI.
- The benefit may be paid only in a case of death
Your policy may state that your family will get a benefit only in a case of your unexpected death, while other types of SLI cover also the loss of hearing, sight, and limbs that make a person incapable of working and providing the family.
Who will benefit the most from getting a Supplemental Life Insurance?
Basically, SLI is a great option for those individuals who are young and have no serious health issues, so it’s too early to think of death. For them, SLI is the reasonable choice due to the low premiums.
Supplemental Life Insurance could be considered a good substitute for a standard Life Insurance policy, as it is always better to have at least some coverage “for any case” than nothing at all.
Besides, the cheapest types of Supplemental Life Insurance are normally paid by employers, so for employees it costs nothing.
If your SLI policy doesn’t cover the loss of hearing and sight, you may try a Payment Protection Insurance.
Key things you need to know before buying an SLI policy
- It is also known as a group Life Insurance bought by employers for their employees. In fact, it’s not a full-size Life Insurance policy but rather an additional one (Supplemental).
- It’s the cheapest type of Life Insurance, so, often, employers pay premiums without withdrawing the cost from employees’ salaries. It’s an affordable substitute for a standard Life Insurance.
- Most common types of Supplemental Life Insurance policies are either AD&D policies or burial Insurance policies (that cover only burial expenses without providing the family with death benefits).
- If your SLI was given to you by your employer, the policy will terminate as soon as you change the job.
- If you SLI is a work group Insurance, you are unable to choose or customize options suitable for you, so you will get a standardized policy.
- You cannot increase the coverage in your work group Supplemental Insurance policy, so your coverage is likely to be a yearly salary rounded to the nearest $1.000 (or an amount that is equal to two yearly salaries).
Some types of SLI prohibit a policyholder from getting an additional policy, even if the coverage and the list of covered options are not enough for a policyholder.