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Supplemental insurance: 5 key types of coverage to know

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Each year, many companies invite insurance agents into their offices to provide their employees with the opportunity to purchase supplemental insurance coverage. Individuals searching for insurance also peruse the Internet to find this unique type of coverage.

When looking at the search results, you'll find that there are many different options for coverage, from life and disability insurance to Medicare and dental insurance. Let's look at what supplemental insurance is and examine the five types you need to know about.

Supplemental insurance definition

Supplemental insurance pays benefits above and beyond the coverage you carry either through a group or individual policy. People without any type of insurance also purchase supplemental insurance as their primary source of financial protection (although it's certainly not ideal). In other words, most anyone can benefit from this type of coverage.

There are numerous benefits of carrying supplemental insurance coverage. They include:

  • Benefits are payable directly to you, not the provider
  • The money provided can be used to pay for deductibles and coinsurance
  • Benefits paid to you can make up for lost income while you're ill or convalescing
  • You'll have funds to pay for expenses not covered by your primary plan

For many, this insurance provides them with peace of mind, knowing that they'll have extra money coming in if they are faced with major medical or dental expenses.

For example, if you know that your child will need braces in the near future, a supplemental plan covering orthodontia may prove beneficial when that time arrives.

Similarly, if you know that you won't be able to pay your bills if a heart condition incapacitates you, a supplemental disability insurance plan can prove to be valuable coverage for you.

Many people only think of supplemental health insurance when considering this type of coverage, but here are five different types of coverage that you should become familiar with.

1. Supplemental health insurance

Thanks to a certain now-famous duck, most people are somewhat familiar with supplemental health insurance. They're aware that benefits are paid directly to the policyholder, but they may not be aware of the different supplemental health insurance types.

Types of supplemental health insurance include:

These coverages have saved many people from devastating financial situations. One study from academic researchers found that 66% percent of all bankruptcies resulted from medical issues, either because of the high cost of care or time out of work. As new, more advanced, and more expensive treatments are adopted, the greater the need for supplemental health insurance will be.

Learn More: Supplemental Health Insurance

2. Supplemental life insurance

Employers often, but not always, will provide life insurance coverage to their employees at low or no cost to the employee. These amounts are typically in smaller amounts, such as $25,000, $50,000, or a multiple of an employee's annual salary.

This is a nice benefit, but it's also a benefit you leave behind when you leave the employer. Your need for life insurance won't go away, but your insurance will. This can leave a family unprotected and exposed financially. Supplemental life insurance goes with you if you leave your employer, helping to protect you until you get coverage from a new employer or purchase a policy independently.

While it's nice to have employer-provided life insurance, it's also inadequate to meet many people's life insurance needs. Someone with a wife, children, and a $250,000 mortgage will likely be inadequately covered if they are only protected by $100,000 of coverage they have through their job. Supplemental life insurance can make a big difference in the lives of surviving family members.

3. Supplemental disability insurance

Supplemental disability insurance is probably the least talked-about type of coverage, but it's quite possibly the most important. Disability statistics show that at least 51 million people lack disability insurance coverage other than the basic coverage offered through Social Security. Yet, only 48 percent of American adults indicate they have enough savings to cover three months of living expenses.

While exorbitant medical costs can cripple you financially, not being able to make your mortgage payment can put you in much greater peril personally.

Many people live paycheck-to-paycheck. Group disability insurance — which places a cap on benefits at a certain dollar amount no matter how much you earn — simply isn't enough to meet most individuals' monthly income needs.

A supplemental disability insurance policy can make a big difference in your lifestyle and relieve you of tremendous financial strain when you need it most: while you're recovering from a devastating illness or injury. Policies pay you directly and allow you to continue to pay for necessities such as mortgage or rent payments, utilities, car payments, and childcare expenses.

Learn More: Personal Disability Insurance

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4. Supplemental dental insurance

Many people dread going to the dentist because it can prove to be physically uncomfortable and because many procedures are costly and not adequately covered by traditional dental insurance policies.

Care Credit is the leading provider of financing for individuals faced with out-of-pocket dental costs that people need to finance. They cite these average orthodontic and dental costs:

  • Tooth Crown: $500 - $3,000
  • Dental Implants (per tooth): $1,000 - $3,000
  • Teeth Bonding (per tooth): $100 - $1,000
  • Dental Veneers: $500 - $1,300
  • Professional Teeth Whitening: $300 - $1,000
  • Full Mouth Reconstruction: $15,000 - $80,000
  • Braces (metal): $1,000 - $3,000
  • Invisalign (clear braces): $3,000 - $8,000

Most primary dental insurance will only cover a percentage of these costs with a maximum allowable benefit. For example, many dental policies will only pay 50% of the cost of braces, with a lifetime maximum of $1,500 per person. This can leave you with a substantial amount that you would need to pay out-of-pocket if you or your children need braces. Supplemental dental insurance can ease the pain of large dental expenses.

5. Medicare supplemental insurance

Many people are under the misconception that you have complete, comprehensive coverage once you are covered by Medicare. This isn't the case. In fact, those covered by Medicare Part A and Medicare Part B coverage can face substantial out-of-pocket costs.

One example of this is the gap in coverage you face if you are hospitalized under Medicare. Your 61st through 90th day of coverage will cost you $352 per day. This would prove to be catastrophic for many seniors living on a fixed income.

Medicare Part B also can leave you with a large amount of personal debt. Part B doesn't cover routine vision or hearing care, routine foot care, cosmetic procedures, or drugs you pick up at a retail pharmacy.

Medicare Supplement Insurance, also known as Medigap, is health insurance that can help pay some of your healthcare costs that Original Medicare (Part A and Part B) doesn't cover. Private insurance companies offer these plans and have saved many seniors from financial calamity due to a lengthy hospital stay or large outpatient costs.

[ Related read: Understanding how Disability & Medicare work together ]

The bottom line

If you have the opportunity through your employer, consider adding supplemental insurance to the list of benefits you receive through working there. If you don't have employer-provided coverage in one of these five critical areas discussed above, it may be a wise decision to add some of these coverages on your own. It may not be the most talked-about type of insurance, but it can be precisely what you need when the unexpected happens.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

Published November 11, 2020