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One of the many ‘trendy’ insurance offerings in the past two decades, supplemental health coverage’s popularity grew alongside in tandem with rising healthcare costs and increased use of high deductible health plans.

What is Gap Insurance?

As the title of this article implies, Gap insurance is essentially insurance on your insurance. Also referred to as supplemental health insurance, these plans were offered as a way to cover additional expenses and address rising medical costs (i.e. bridge the gap). Let’s look into what it does.

  • A supplemental health insurance policy helps cover your deductible.
  • This type of plan is often used in tandem with a high deductible health plan.
  • High deductible health plans are popular because of low premiums.

Let’s look at each of these terms.

Helps to Cover Your Deductible—What is a Deductible?

A deductible is the threshold of out of pocket costs before your plan begins sharing costs. For example, a $5,000 deductible means that you pay out of pocket for the first $5,000 of coverage.

Used in Tandem with a High Deductible Health Plan—What is a High Deductible Health Plan?

High deductible health plans were created to address healthcare costs. High deductible health plans (HDHP) come with lower premiums (the amount you pay each month) and higher out of pocket costs.

A Popular Option—Why did HDHPs become popular?

In simplest terms, cost control. As healthcare costs skyrocketed, HDHPs popped up to allow premiums to remain under control. Rather than paying $500/month and having a minimal deductible or out-of-pocket, individuals could opt for lower premiums and higher deductibles/maximum out-of-pocket.

Types of Supplemental Health Insurance

If you’re looking at supplemental health insurance, you have options, and these plans are built to be flexible. Here are just some of the potential plans you have access to:

Accidental Death or Dismemberment

Accidental Death & Dismemberment (AD&D) Insurance helps pay a lump sum in the event of a covered accident. This covers accidents that result in loss of life, loss of speech, loss of hearing, loss of a hand or foot, loss of sight, loss of movement, or loss of a thumb and index finger.

Cancer Insurance

Did you know that 1 in 2 men and 1 in 3 women develop cancer in their lifetime? Cancer insurance is another supplemental policy that pays for the out-of-pocket costs associated with cancer that may not be covered by insurance.

Critical Illness/Disease-Specific Insurance

Another popular supplemental health plan, critical illness includes cancer insurance, but also covers you for other critical illnesses specified in the policy.

Hospital Indemnity

Another supplemental option, hospital indemnity is similar to AD&D insurance, but is meant to pay for a broader range of cases. This will cover gaps and pay for things including but not limited to hospital admission, overnight stays, intensive care, ER visits, and more.

Long-Term Care Insurance

Long-term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time. Long-term disability insurance (LTD) begins to assist the employee when short-term disability insurance (STD) benefits end, and can last anywhere from two to ten years.


One of the most common types of supplemental insurance is Medigap, which can be sold by private insurance companies to people enrolled in Original Medicare. You can purchase a Medigap policy to cover some or all of the out-of-pocket costs (deductibles and coinsurance) you’d otherwise incur under Original Medicare.

Short-Term Disability

Short-term disability insurance is an insurance policy that protects an employee from loss of income in the case that he or she is temporarily unable to work due to illness, injury, or accident. Short-term disability insurance ensures that an employee will still receive a percentage of income if they cannot work due to sickness or a disabling injury.

How Does Gap Insurance Fit In?

Meant for limited circumstances, gap insurance gives you peace of mind. Many Americans with high deductibles and high out of pocket costs don’t reach their deductible or maximum out of pocket.

One Example of Gap Insurance

Say you have a plan for five years—and four of those years, you visit the doctor twice a year, fill prescriptions, and never come close to hitting your deductible. In one of those years, you’re in an accident. This is where gap coverage comes in. Gap coverage provides a cash benefit when you do need to pay for your deductible.

Couldn’t I Just Pay a Higher Premium on my Major Medical Plan?

You could, but you never know when you’ll need to use the plan. If you’re constantly hitting your deductible year after year, it probably pays to select a higher-premium plan. However, the goal of supplemental health insurance is to protect you when you least expect it.

What Gap Insurance is Not

Though gap insurance may be an option for some people, it’s important to understand what gap insurance isn’t meant to do.

It Is Not Major Medical

The word ‘supplemental’ is operative here. These plans are designed to address gaps in your major medical coverage.

It Does Not Meet Standards for Minimum Essential Coverage

Plans offered by employers or available in the marketplace require insurers to cover ‘essential benefits.’ Supplemental health plans do not cover all ten of these and prior to the removal of the shared responsibility payment would have resulted in fines.

It Is Not Guaranteed

As a plan that is not regulated by insurance law, a gap plan is not bound by the same rules as a major medical plan. This means that you can be turned away, you may have to complete a health questionnaire, and you could be turned away for preexisting conditions.

When Should You Consider a Supplemental Health Insurance Plan?

If You’re Healthy and Have a High Deductible

Often, the people most likely to pay for additional, supplemental insurance are those whose primary health insurance policies come with high deductibles. With gap coverage, you add a bit of expense monthly—and receive significant relief when you need it.

If You Want Flexibility

One of the reasons for a supplemental health plan is the flexibility it provides. Rather than a traditional insurance plan, in which money goes directly to the provider, you generally receive a lump-sum cash benefit that can be used to cover mortgage expenses, daycare, or credit card payments. This can help your family keep living normally if you are the primary source of income.

In Certain Cases When You Have an HSA

Health Savings Accounts offer significant benefits for users. Pre-tax contributions can help you not only save up for retirement, but for medical costs. Depending on the supplemental insurance policy, you might have the option to pay for your care with the money put into your HSA, receive the lump-sum, and use this for additional flexibility without significant tax issues.

“As more clients move to health savings account plans, it (critical illness insurance) is one of the few types of coverage that do not jeopardize the tax advantages of that plan,” said Beth Grellner, health and group benefits practice leader for the St. Louis office of Towers Watson & Co.

If You Think You’ll Need It

The thing about an accident is that you never know when it’s going to happen. Maybe you’re turning 50 and are worried about something catastrophic happening in the next 14 years. Maybe you’re worried that sometime in the next few years, you’ll need to go on an expensive medication. The ideal situation is to buy this when you don’t need it. Put simply, you’re betting that you will need to use it.

It Pays to be in the Know: Know Your Options

Health insurance is a complex beast, and this didn’t even begin to scratch the surface of the nuances that exist in a health insurance policy. Supplemental insurance can deliver the protection you need in the event of an unexpected accident or illness, but it’s important to understand whether it’s worth it.

If you’re looking for major medical or supplemental policies, Insurance Broker Hub can help. Our free service gives you access to an independent network of national brokers who have the experience and expertise to design a plan around your needs and budget. Ready to get started? Simply request a no obligation health insurance quote here.