Your Essential Guide to Supplemental Insurance Plans


We’ve all seen the Aflac duck commercials squawking away about how having supplemental insurance was a lifesaver after an accident. But, is it something you need?

“The cost of many health insurance policies are getting out of reach for many consumers and families,” says John Barnes, a certified financial planner with My Family Life Insurance. “Deductibles are increasing at a rapid rate, so people are wondering where supplemental insurance policies come into play.”

In fact, in 2015, average annual premiums for employer-sponsored health insurance rose 4 percent over the 2014 average premiums, with wages only increasing 1.9 percent.

These insurance policies are often marketed direct-to-consumer, so it can be difficult to get the unbiased opinion you’re looking for. Not to mention, there are many different types of supplemental insurance — there’s not a one-size-fits-all plan.

Here, insurance experts give you everything you need to know about supplemental insurance plans.

What is supplemental insurance?

Supplemental insurance, also known as gap or voluntary insurance, is insurance purchased to supplement medical coverage.

“As medical costs continue to rise and high deductible health plans grow in popularity, supplemental insurance can help with added expenses, like deductibles, co-pays, and even day-to-day expenses,” says Jocelyn Grega, assistant vice president of consumer marketing at Unum, a supplemental insurance provider. “Supplemental coverage is another layer of financial protection.”

It’s important to note there’s not just one type of supplemental insurance plan. Instead, many different types cover a range of health-related concerns from emergencies to long-term health issues. Here are the top five.

1. Dental and vision

“Medical plans often lack comprehensive dental and vision benefits, and supplemental dental and vision coverage can help with the costs of preventative measures, routine maintenance, and even surgery,” says Grega. These supplemental health insurance plans can make for more complete coverage for your general health.

According to Barnes, dental and vision usually don’t deny coverage. To prevent adverse selection, dental and vision carriers typically have a waiting period before any major procedure. The waiting period could be six, nine, 12, or 18 months.

Who is this best for?

If your primary insurance policy is lacking in dental and vision coverage, then you might want to consider a supplemental plan especially if you regularly use those doctors. It also helps in the case of an oral or eye emergency.

2. Critical illness

If you already have critical illness coverage and are diagnosed with, for example, cancer, or if you suffer a stroke, you will be paid a lump sum of money to cover things such as a major organ transplant. You can not purchase the plan after the diagnosis.

“That lump sum of money, which ranges from $10,000 to $1 million, can be used for anything, like deductibles, groceries, mortgage payments, or travel expenses for doctors’ appointments,” says Grega.

Costs are based on your age, who you choose to cover (yourself or dependents), and selected benefit amount. Whether or not you use tobacco also affects your rates.

Who is this best for?

The threat of bankruptcy due to a major illness and cancer is real. Just because you have health insurance doesn’t mean you have complete coverage in these cases.

“If heart disease or cancer runs in the family, I generally think it is appropriate to look into a critical illness policy,” says Barnes. “If your job is high stress, a critical illness policy can be needed. If you are otherwise healthy, then maybe can hold off on this.”

3. Disability insurance

This is basically income protection,” says Grega. “Disability insurance pays you a portion of your income if you’re unable to work for a period of time.”

That period of time depends on the specific policy, but can range from until you can go back to work to the number of years stated in the policy. Some policies last until age 65.

Many factors go into determining your premiums for such coverage, including age, sex, occupation and the amount of potential lost income you are trying to protect.

The less likely you are to get hurt on the job, the lower your premiums will be. Someone with a desk job will likely pay less in premiums than a construction worker.

The percentage of your income you would receive from the policy depends on how much coverage you purchase, your lifestyle, career, age, length of payout, and waiting period.

For example, a healthy woman in her 30s with no other disability insurance in a non-laborious job could pay between $205 to around $275 a month, for a monthly payout of about $5,000 a month until she was 65.

Who is this best for?

“If you would have trouble paying bills without a regular paycheck, this is a great financial solution,” says Grega. “While many young people assume the chances of disability are slim, the Social Security Administration says that one in four 20-year-olds will have a disabling incident before they retire.”

According to Grega, the top causes of disability claims for millennials are pregnancy, cancer, injury, and joint or back disorders.

4. Personal accident insurance

Accident insurance pays a lump sum, ranging from about $5,000 to $25,000 directly to you if you get hurt in an accident, which can range from breaking your ankle while playing tennis to slipping on ice.

“You get a fixed amount based on your injury to use however you want,” says Grega. “From hospital expenses to dog walking services.”

Barnes adds, “Nearly all accident policies cover accidental death or dismemberment, too. So, if you are truly uninsurable from a life insurance perspective, you will have coverage through this policy if you die from an accident.”

The actual list of injuries will vary from policy to policy, but things like an injury resulting from sickness and disease, recklessly putting yourself in a dangerous situation, injury suffered when under the influence of drugs or alcohol, self-inflicted injury, sustaining an injury while committing a crime, and injuries sustained before purchasing the policy are not typically covered. The policies also don’t cover preexisting conditions.

Who is this best for?

“I recommend accident insurance if you have a higher chance of getting injured either on the job or doing a personal activity like a sport,” says Barnes. “The best policies cover both on and off the job. They also cover family members and children.”

It can also help with your costs, even if workers compensation covers you. Barnes recommends that nearly all self-employed individuals who work laborious jobs should have this policy as they don’t have access to workers compensation.

Many policies will also cover sports injuries, according to Barnes. If your son or daughter actively play sports and gets hurt, you can receive payment for that sports accident.

5. Life insurance

If you have student loans, mortgages, and auto loans, life insurance can cover those debts.

“If something were to happen to you,” says Grega. “This coverage can also help your family cover final expenses, like funeral arrangements, which often range from $7,000 to $10,000.”

There are two major types of life insurance: term and whole life. Term pays only if death occurs during the term of the policy, which is usually from one to 30 years while whole will cover whenever you die.

The average premium costs will differ based on multiple factors, including age, occupation, and if you’re a smoker. It also ranges in the amount of coverage, which could be $250,000, $1 million, or more.

Life insurance can deny coverage based on health, lifestyle, occupation, and driving history. If you are a skydiving instructor, you probably won’t qualify for individual coverage. If you use drugs, same. If you are on probation, probably no coverage.

“Coverage can be obtained once the high-risk lifestyle or occupation no longer exists or the carrier believes you are no longer a risk,” says Barnes. “If the skydiver now works in an office and no longer skydives, probably could get coverage. If the person who uses drugs is now clean and has been for over 5 years, probably could. Driving history plays a role because if the carrier sees that you are a reckless driver, you won’t get coverage.”

It’s also important to make clear that not all student loan debt becomes your surviving family’s responsibility. Federal student loans, including Parent PLUS, are discharged when the borrower dies.

Some private student loan lenders do offer a death discharge, but some might come for your estate when you die. Typically, if the loans are only in your name, your children or other relatives aren’t generally considered liable.

Who is this best for?

“You might not need coverage if you’re young, living independently and don’t have debt,” says Grega. “However, if you have certain debts, like credit card, you’ll want life insurance so the financial burden isn’t passed on to your family.”

In general, big life stages can trigger the need for it — buying a house, getting married, having kids or sending kids to college — since you’ll have more money at risk in case you die suddenly.

Why would you need supplemental insurance?

You need supplemental insurance if you or your spouse would have trouble affording out-of-pocket medical expenses, like copays or deductibles, which is often the case for those without substantial savings, like recent college graduates or young professionals.

There are certain lifestyle and health history factors in mind too. “If you have a laborious job, active family, or are self-employed in a laborious job (say a plumber or construction), or have a history of heart disease or cancer runs in your family, you may want to consider a policy,” says Barnes.

“Also, if you have a high deductible health insurance policy and you feel you are paying way too much or paying too much out of pocket, these supplemental insurance policies can pay some, or all, of your cost back.”

The benefits of having supplemental insurance are you’ll have more coverage in case something unexpected happens so you don’t have to dip into your savings as much. But, the downside is you could be paying an extra monthly cost for something you’ll never use. “You need to balance the premium cost and coverage,” says Barnes.

What will it cost?

“Supplemental insurance, depending on the type, is usually not that expensive,” says Barnes. “But, you need to balance the premium cost and coverage. I try to avoid having a consumer or family pay a high premium for a small benefit or risk.”

Another cost consideration is where you buy the plan. “It’s usually more affordable to purchase supplemental insurance through the workplace than to buy on your own outside of work,” says Grega. “Costs for critical illness, life and disability insurance are usually about $25 per month, but prices can vary depending on the plan.”

A supplemental health insurance plan is your call

Ultimately, it’s a personal decision whether you need supplemental insurance or not. Having an understanding of who needs it based on the expert information can help make that decision a bit easier.

Ask yourself if you fall into one of the categories above and if you do, start to research different insurance plans in that specific category. This will help you narrow down what you’re researching and let you compare the cost and benefit of each.

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