Life insurance policyholders who wish to purchase coverage for their spouse or child can generally do so by adding dependent life insurance coverage to their existing policy.
Coverage options for dependents vary by insurer and plan, but will typically limit the amount of coverage to significantly less than would be available through an individual policy. Although dependent coverage can be added to individual and group life insurance policies, voluntary dependent life insurance generally refers to coverage obtained through an individual’s employer.
How does voluntary dependent life insurance work?
Voluntary dependent life insurance, also called group dependent life insurance, is often available as part of a benefit plan through employers. Dependent insurance may cover your spouse, children, and any other eligible dependents, depending on the rules set forth in the plan. If a covered dependent dies, you would receive the face value of the dependent’s life insurance policy as a death benefit, since the employee is automatically designated as the beneficiary.
Depending on when you opt for dependent life insurance coverage and the amount of coverage you want to purchase, you may be required to provide evidence of insurability for your dependents. this usually only requires you to fill out forms that answer basic health and medical questions about your family, so the insurer can assess your risk.
Dependent Life Insurance Cost and Coverage Options
Dependent coverage is generally offered in increments of a certain dollar amount, such as $2,000 or $10,000. So, for example, a plan might allow you to purchase up to $10,000 of dependent insurance per child in $2,000 increments, meaning you can purchase $2,000, $4,000, $6,000, $8,000, or $10,000 of coverage per child. Each dependent life insurance plan will specify a maximum amount of coverage per eligible dependent, generally with higher limits for spouses than children. but your dependent coverage options may also be limited by the amount of group coverage you purchased for yourself. your maximum coverage is often limited to 50% to 100% of your own supplemental coverage.
Dependent life insurance can be purchased for just your spouse, just your children, or all eligible dependents, but the rules of most plans don’t allow you to specify that only one child be covered. however, this does not affect the cost: all children are generally covered at the same rate that covers a single child, and the dollar amount is simply determined based on the amount of coverage purchased. Rates for spouse supplemental life insurance will generally be higher, since adults are considered to be at higher risk of dying, and will vary depending on the amount of coverage purchased and the age of your spouse.
Premiums for dependent coverage, as well as the cost of any voluntary life insurance you’ve purchased for yourself, are automatically withheld from your paycheck after taxes.
dependent coverage after leaving an employer
Children’s life insurance policies generally cannot be converted, so when a child’s eligibility for dependent insurance ends, they simply no longer have life insurance. Dependent life insurance policies for spouses, on the other hand, often come with a conversion option that can be used if:
The conversion option allows your spouse to maintain life insurance coverage without showing proof of insurability by converting the dependent policy to an individual life insurance policy. Your options are likely to be limited in terms of which insurers the new policy can be purchased with and the types of policies to which it can be converted. For example, you may only have the option to convert to a permanent life insurance policy, such as whole or universal life insurance.
In some cases, employers offer the option to continue a dependent life insurance policy after the employee’s retirement date, provided they meet certain seniority or seniority requirements. however, this is not common and we recommend that you confirm with your plan administrator if your family would qualify.
Who qualifies as a dependent for life insurance?
To purchase dependent coverage for an individual, you must first qualify as a dependent according to the definitions of your group life insurance plan. Most plans allow you to add dependent life insurance for your children and spouse, as long as they meet certain requirements. For example, like health insurance, many supplemental life insurance plans only treat children as dependents until they turn 26. Some group plans also allow you to purchase life insurance for other adult dependents, although this is less common.
In addition to the above, a common restriction on dependent life insurance is that it cannot be duplicated with another policy under the same group life insurance plan. For example, if you and your husband are employees of the same company and he already has group life insurance as an employee, you would also not qualify for dependent life insurance. Similarly, if you had children, you or your spouse could purchase dependent children’s life insurance on them. You would not be allowed to have two policies of a group life insurance plan from a single company covering the same child.
military dependent life insurance
if you are on active duty in the armed forces or qualify for servicemembers group life insurance (sgli), your dependents may qualify for coverage through family servicemembers group life insurance (fsgli ). fsgli is essentially term life insurance for dependents of members of the military, which means it must be:
Military dependent life insurance is limited to your spouse and children under the age of 18, full-time students, or permanently and totally disabled. To qualify, you must already have a full-time SGL. if you have part-time sgli or veterans group life insurance (vgli), your family members will not qualify. coverage is issued in increments of $10,000 and the maximum amount of coverage per child is $10,000. the maximum coverage for your spouse is $100,000 or the amount of sgli coverage you have, whichever is less.
fsgli dependent life insurance is free for your dependent children, while the cost to cover your spouse will vary depending on your spouse’s age and the amount of coverage purchased. Starting at age 35, every five years, the cost will increase for the same amount of supplemental coverage for the spouse. For example, if his wife is currently 34, the cost of $100,000 of dependent life insurance would be only $5 per month. in five years, when you’re 39, the same amount of coverage would cost $6.50 per month.
However, it will allow your spouse to continue their life insurance coverage without needing to re-qualify and show proof of insurability, which may be beneficial if you are older or have a diagnosed condition. fsgli coverage for dependent children cannot be converted to an individual policy.
Is dependent life insurance a taxable benefit?
Dependent life insurance is not considered a taxable benefit from your employer if it pays in full. If your employer pays for some or all of your dependent life insurance coverage, it is also not considered a taxable benefit as long as the face value of the employer-paid coverage is less than $2,000. tax law considers up to $2,000 of employer-paid dependent life insurance per dependent to be a de minimis fringe benefit, so the cost would not be considered taxable to the employee.
However, if your employer pays more than $2,000 of life insurance for a single dependent, the full cost of the policy is generally considered a taxable benefit. The taxable cost of life insurance is determined based on the IRS premium tables, which standardize the value based on the amount of coverage provided and the age of the insured person. In some cases, the amount of dependent life insurance that is considered an additional benefit may be higher, so you should consult a tax expert if this applies to you.