A supplemental contract is a contract in which a life insurance company and a life insurance beneficiary agree to have the proceeds of a life insurance policy paid out in a particular manner. This could be in installments, in a lump sum, etc. It is a formal and legally binding contract.
The proceeds from life insurance policies can be huge sums of money. A single life insurance policy could be worth millions of dollars and beyond. Because such huge sums can be involved supplementary contracts are often used to make sure that the life insurance company is legally bound in a formal agreement to pay out the proceeds in a specific manner. There are usually a number of different pay out options. It is up to the two parties to decide which pay out method will be used.
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