Can Employer Life Insurance Cover Terminal Illness?

can employer life insurance cover terminal illness

Many employers offer life insurance policies as a prospective benefit for their employees, but with a one-size-fits-all approach, it can be confusing to understand just what your policy covers. With a set benefit amount, set term limit, and other adjustable qualities of an employer-sponsored life insurance plan, you may wonder if certain things, like a terminal illness, are covered under your employer's life insurance. The answer is that it depends, but it is unlikely that the policy provides that coverage. 

Understanding Employer Life Insurance 

Life insurance provided by your employer is a great added benefit, but it’s rarely a benefit that completely suits everyone. Consider the diversity of an employer's workforce. A single person with no dependents will not require the same benefits as someone with a family of six, even though the blanket employer-sponsored life insurance will treat these two the same when it comes to coverage. 

Because of this, many resort to purchasing a supplementary life insurance plan to boost their coverage from employers. Seeking extra coverage is also important when it comes to policy add-ons known as riders. Because an employer-backed life insurance policy is usually the bare minimum, the policy offered may not include important, useful policy riders, like those related to terminal illness. 

Life Insurance And Terminal Illness Diagnosis 

Some life insurance policies will allow a you to use their death benefit amount early if you’ve been diagnosed with a terminal illness. This is known as an accelerated death benefit. The accelerated death benefit means people can "borrow" a portion of their life insurance's value to support their needs. 

When the policyholder dies, the life insurance company can hold onto a portion of the total benefits that equals the amount that the terminally ill person borrowed prematurely. While this means a smaller payout for beneficiaries upon death, it also means avoiding medical debt and supporting loved ones. Examples of use for the accelerated death benefit include: 

• Transportation 
• Childcare 
• Healthcare visits 
• Medication 
• Live-in services 
• Care services 

This accelerated death benefit can be life-changing for someone without ample savings or other means to support themselves and their family through a terminal diagnosis. Typically, the benefit is not included in a default life insurance plan like your employer may provide. And because the plan is employer-sponsored, employees have little to no room to adjust their policy coverage according to their financial needs. 

What To Do If Your Employer Doesn't Cover Terminal Illness 

As mentioned above, it is possible to stack life insurance policies to make sure you have well-rounded coverage. While you wont be able to accrue permanent life insurance, you can certainly supplement to obtain private coverage that permits accelerated death benefits in addition to your employer-sponsored plan. 

The Bottom Line On Employer Terminal Illness Life Insurance Policy Coverage

Life insurance can be tricky, but it is a necessary tool to ensure you and your loved ones are protected. Though an insurance plan provided by your employer can seem like the end-all-be-all solution to your needs, they often exclude important policy riders like the accelerated death benefit. To ensure you have all the policy coverage you need, don't be afraid to look for more insurance that offers the benefits you need if your employer plan does not offer it. Do what you need to do to protect your family's financial future!

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