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Supplemental insurance

Supplemental insurance is extra coverage that helps with specific situations, like fixing a broken appliance with an extended warranty or paying off a mortgage if something happens to you. These types of insurance can be helpful in certain cases, but it's important to think about your needs and if the extra cost is worth it. Created by Sal Khan.

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  • aqualine seed style avatar for user paul
    What does Sal mean by “cash value” at ?
    (1 vote)
    Default Khan Academy avatar avatar for user
    • aqualine tree style avatar for user David Alexander
      "Whole Life" policies are basically a different kind of savings account. After the insurance company's initial costs are paid off, the policy begins to accrue value. A policy holder can borrow money from the insurance company in an amount up to the cash value of the policy. However, if the policy holder dies before paying that money back, the "award upon death" will be reduced by the amount of the unpaid loan.
      (2 votes)
  • leafers sapling style avatar for user SnowyRawrGamer
    So supplemental Insurance is just above and beyond insurance, right?
    (0 votes)
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    • aqualine tree style avatar for user David Alexander
      Effectively, that's it.
      Let's imagine that you buy a "gizmo". The average gizmo lasts 3 years in ordinary use. The company will replace it for free if it fails after 2 (so, the odds are that free replacement will never be needed.) Now, maybe your credit card also insures it somehow, like "for the first 90 days", which costs the bank NOTHING AT ALL. But then, the website itself offers you an extended warranty program for only a few dollars a year, and promises to replace your gizmo, if it fails, AFTER the two years, and up to 4. You feel really safe, when you add that on to the purchase price.
      Remember, the average gizmo lasts 3 years, so half of them last longer than that. The website company has now "harvested" a few dollars times a couple years, and will likely NEVER have to pay for replacing your gizmo.
      This is how fortunes are made for the stockholders of insurance companies.
      (2 votes)
  • blobby green style avatar for user Angel Padron
    So it's insurance on top of your insurance that you already have...?
    (0 votes)
    Default Khan Academy avatar avatar for user
    • aqualine tree style avatar for user David Alexander
      Effectively, that's it.
      Let's imagine that you buy a "gizmo". The average gizmo lasts 3 years in ordinary use. The company will replace it for free if it fails after 2 (so, the odds are that free replacement will never be needed.) Now, maybe your credit card also insures it somehow, like "for the first 90 days", which costs the bank NOTHING AT ALL. But then, the website itself offers you an extended warranty program for only a few dollars a year, and promises to replace your gizmo, if it fails, AFTER the two years, and up to 4. You feel really safe, when you add that on to the purchase price.
      Remember, the average gizmo lasts 3 years, so half of them last longer than that. The website company has now "harvested" a few dollars times a couple years, and will likely NEVER have to pay for replacing your gizmo.
      This is how fortunes are made for the stockholders of insurance companies.
      (1 vote)
  • blobby green style avatar for user readeee
    Is this relevant in the UK?
    (0 votes)
    Default Khan Academy avatar avatar for user

Video transcript

- So let's talk a little bit about supplemental insurance. Now, it is what the words describe it as, it is a supplement, to usually some other existing insurance. It's insurance above and beyond things that you might already have. So there's a lot of examples of supplemental insurance, but they they usually try to cover specific things that you might worry about. For example, there might be mortgage payoff life insurance. One of the main reasons why, for example, I have life insurance, is if something were to happen to me, I want my family to still be able to live in our house, and to be able to pay off our mortgage, and not worry about where that income's coming in, so I've gotten enough life insurance to do that. But the insurance companies know that sometimes people worry specifically about that situation. And so people might get that very specific type of life insurance, mortgage payoff life insurance, which you could view as a supplement to traditional life insurance. Now, if you've got enough life insurance, you should be able to pay your mortgage, and then, hopefully, do other things that your family needs to support them. But this might be a supplement that you look at. But whenever you look at any form of insurance, realize that the insurance company has done the statistics, and they're gonna make money off of it. Now that doesn't mean that you shouldn't do it. Oftentimes it will protect you in a lot of ways, so it is worth doing it, but you should think about whether you need to do it, or whether it's already covered by another insurance you have. Another example is car insurance. You might have comprehensive car insurance already, where if the car not only gets in an accident, but if it's stolen, if a tree falls on it, the insurance company will pay you the cash value of the car. And so if you wanted, you could go and get another used car just like that. Now some people, if you're not paying off your debt fast enough on your car loan, the cash value of your car might be less than the amount that you owe back on your car. Now that's, in general, not a good situation, if you're paying back your car loan slower than your car is actually losing value, not a great situation to be in. But a lot of folks wouldn't want to get money from an insurance company for, say, a car got totaled, and it still can't even pay back the total loan available on the car. So they have things like auto loan payoff car insurance, which you could view as a supplement to traditional insurance. But once again, it's not a great situation to be in, and in theory, even if the insurance company is paying you the cash value, you could go and get an equivalent used car. And even though you owe more money than that, you're kind of in the same situation you were before the accident, or whatever scenario you were in. But the general principle, supplemental is above and beyond. Maybe you have insurance, dental insurance, or life insurance, or some other type of insurance from your employer, and you just think, "Hey, I would like more insurance, they're not giving me enough." Well, that could be a good reason to get supplemental insurance as well.