Basic vs. Supplemental Life Insurance

Life insurance is a private contract between you and a life insurance company. The insurance company provides a death benefit to you in exchange for premium payments. Some individuals purchase special policies with supplemental benefits so that increased coverage can be purchased in the future. If you purchase a policy with a supplemental rider, you should understand the differences between basic and supplemental life insurance.

When you purchase life insurance with supplemental benefits, it's important to understand what you're buying. Basic life insurance refers to the basic, or base, policy. This is the "chassis" of your life insurance policy, so to speak. Without this base policy, your life insurance doesn't exist. Supplemental insurance is a rider that you can add onto the base policy that allows you to purchase additional insurance as time goes on, during certain stages of your life, or on certain future dates.

Being able to purchase supplemental insurance without evidence of insurability is important, especially if your health declines in the future. It also saves time because you don't have to go through additional underwriting.

The size or amount of the death benefit on your supplemental life insurance can be more than the base policy death benefit, but typically cannot be more than a certain percentage over the base face amount. This makes sense, though, since supplemental insurance is supposed to be supplemental. The exact percentages of allowable supplemental insurance will vary according to the insurer.

One common misconception is that supplemental insurance refers to a separate insurance policy. While this use of the term is common, supplemental insurance technically refers to additional insurance added to the base policy of a permanent life insurance policy.

When purchasing supplemental life insurance, pay attention to the cost of the additional insurance. It is common for the supplemental insurance to be a convertible term policy added to the base policy. However, some companies use an annual renewable term life policy as the supplement. These policies can be quite expensive over time as the cost of insurance is guaranteed to rise as you become older. Premiums could easily eclipse the base policy premium amount if you're not careful.