Dependent Life Insurance

Dependent Life Insurance
Some group life insurance contracts provide insurance coverage on the lives of employees' dependents. Dependent life insurance has been viewed as a method of giving the employee resources to meet the funeral and burial expenses associated with a dependent's death. Consequently, the employee is automatically the beneficiary. The employee also elects and pays for this coverage if it is contributory. Coverage for dependents is almost always limited to employees who are themselves covered under the group contract; even if an employee's coverage is contributory, the employee must elect coverage for himself or herself in order to be eligible to elect dependent coverage.

For purposes of dependent life insurance coverage, dependents are usually defined as an employee's spouse who is not legally separated from the employee and an employee's unmarried dependent children (including stepchildren and adopted children) who are older than 14 days of age and younger than some specified age, commonly 19 or 21. To prevent adverse selection, an employee usually cannot select coverage for individual dependents. A few policies do allow an employee to elect coverage for the spouse only or for children only. If dependent coverage is selected, all dependents fitting the definition are insured. When dependent coverage is in effect for an employee, any new eligible dependents are automatically insured.

The amount of coverage for each dependent is usually quite modest. Some states limit the maximum amount of life insurance that can be written, and a few states actually prohibit writing any coverage on dependents. Employer contributions used to purchase more than $2,000 of coverage for each dependent are recognized as income to the employee for purposes of federal taxation. However, amounts in excess of $2,000 may be purchased with employee contributions without adverse tax consequences. In some cases, the same amount of coverage is provided for all dependents; in other cases, a larger amount is provided for the spouse than for the children. It is also not unusual for the amount of coverage for children to be less until the children attain some specified age, such as six months. Tables 1 and 2 are examples of benefit schedules under dependent coverage.


Table 1: Benefit Schedule (Same Amounts for All Dependents)


Table 2: Benefit Schedule for Dependents (Varied Amounts)

A single premium applies to the dependent coverage for each employee and is unrelated to the number of dependents. In some cases, the premium may vary, depending on the age of the employee (but not the dependents), but more commonly it is the same amount for all employees regardless of age. Dependent coverage usually contains a conversion privilege that applies only to the coverage on the spouse. However, some states require that the conversion privilege apply to the coverage on all dependents. Assignment is almost never permitted, and no waiver of premium is available if a dependent becomes disabled. However, if the basic life insurance contract contains a waiver-of-premium provision applicable to the employee, the employee's disability sometimes will result in a waiver of premium for the dependent coverage. A provision similar to the actively-at-work provision pertaining to employees is often included for dependents. It specifies that dependents are not covered when otherwise eligible if they are confined in a hospital (except for newborn children, who are covered after 14 days). Coverage commences when the dependent is discharged from the hospital.