The Complete Guide to Ancillary Health Insurance for 2023

Updated · Mar 06, 2023

Ancillary health insurance is a great addition to a company’s benefits package.

It reduces the cost of healthcare and helps businesses attract and retain talented employees. But more importantly, it improves the overall employee well-being.

This guide is for you if you are:

  • An employer looking to create an attractive benefits package
  • An individual wondering whether to take advantage of the company perks

Below, we define ancillary insurance and give an overview of the most attractive benefits for employees.

What Is Ancillary Insurance?

The definition of ancillary insurance is coverage for medical expenses that are not included in major medical insurance plans.

These can be hospital charges, dental and vision care, prescription drugs, and even vet visit costs.

Employers can provide ancillary benefits in two forms:

  • Employer-contributory: The company pays part of or the entire premiums. The employee's share is taken out of their paycheck before taxes.
  • Voluntary: Employees pay the full cost of the premium. The benefit is that it is cheaper when it is part of a group plan than an individual policy.

Types of Ancillary Products and Insurance

As you probably noticed, the definition of ancillary coverage is broad.

It is used to describe many different types of insurance.

Let’s see the most popular options.

Critical Illness Insurance

With critical illness insurance, the policyholder receives a lump sum if diagnosed with a covered disease.

The list of illnesses and conditions includes cancer, heart attack, and stroke, and more.

Employees can use the benefit to cover medical or living expenses, or other costs.

That will give peace of mind to policyholders and their families. Plus, it is cheaper than many other policies since it covers a limited range of diseases. 

That also makes it a cost-effective option for employers.

Group Life Insurance

What does ancillary mean in the context of group insurance?

It means that this type of coverage is better used as supplemental insurance. Since it is cheaper or even free, you can add it to your individual life insurance plan.

Here’s how it works.

The employer purchases a group policy and offers it to staff members.

The company pays part of or the entire premium. Either way, it is cheaper than individual insurance.

And while the coverage is also smaller, group insurance is a valuable benefit for employees, especially if they have dependents who rely on their income.

If something happens to the policyholder, the insurance company will pay out a death benefit to the beneficiaries.

Hospital Indemnity Insurance

This type of ancillary health insurance helps cover the costs of hospital stays.

The employee can use it if admitted to a hospital or ICU for a covered illness or injury.

With it, they can cover things like deductibles, co-pays, and other out-of-pocket expenses.

Disability Income Insurance

Disability insurance provides financial protection if an employee can’t work due to an injury or illness.

Policyholders can use it to cover living expenses and medical bills associated with the disability.

This ancillary insurance comes in two forms: short-term and long-term. Most employers choose the former.

Accidental Death Policy

This type of life insurance pays out a benefit in the event of accidental death. Depending on the policy, it might include anything from car accidents to workplace incidents.

Accidental death coverage typically has lower premiums than traditional life insurance because it only covers one specific cause of death.

This type of ancillary insurance is essential if the job involves a risk of incidents.

Long-Term Care

Long-term care insurance covers extended care in case of a chronic illness, disability, or disorder.

Generally, the type of care is divided into three categories: custodial, skilled, and intermediate.

Custodial care includes basic assistance with daily living, such as bathing and dressing.

Skilled care is medical services like wound care or physical therapy provided by a nurse or therapist. 

Intermediate care is somewhere between custodial and skilled care. It includes services such as intravenous therapy or medication management.

The type of ancillary coverage provided depends on the policy and policyholder’s needs.

Health Savings Account

A health savings account (HSA) allows you to set aside money for medical expenses on a tax-free basis.

Employees can use the funds to pay for a wide range of medical expenses, including doctor's visits, prescription drugs, and dental care.

HSAs are available to anyone with a high-deductible health insurance plan. Best of all, they might serve as a supplementary retirement plan.

Pet Insurance

Just as you insure your life or your car, you can also insure your pet.

This type of ancillary insurance covers the cost of veterinary care for your animal companion.

There are a variety of pet insurance plans available.

Some policies cover routine care, and others—major medical procedures.

They can be for different breeds of animals—cats, dogs, horses, and so on.

While it certainly isn’t standard, it can be a valuable addition to a benefits package.

Benefits of Ancillary Health Insurance

There are numerous perks of offering ancillary insurance to your employees.

For starters, providing a comprehensive level of coverage will significantly lower healthcare costs for employees.

In turn, this will decrease absenteeism and improve productivity.

In addition, offering ancillary health insurance makes the benefits package much more attractive. This will help you find and retain employees.

Last but not least, with Section 125, your employees can pay with pre-tax dollars. This will lower your FICA contributions.

Wrap Up

Ancillary health insurance covers medical expenses incurred outside of regular plans.

These can be things like dental care, prescription drugs, and even veterinary care.

Offering ancillary insurance is beneficial to both employees and employers.

So, explore your options and choose the right type of policy.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.