So you are signing for life insurance
through your employer's sponsored
benefit package. You choose the
amount of coverage you wish to select
for yourself. Further down the
application, there is a
section for selecting dependent life
insurance. What exactly is this
and does it make sense to take this
offer? Let's look a little further
at dependent life insurance.
first talk about insurable interest.
Who exactly can you list as a dependent
and then take out life insurance on
them? It's roughly the same as
health insurance. It typically
applies to a spouse, children, and
perhaps a domestic partner depending on
the company's rules and guidelines.
insurance on a brother or
parent usually. Insurable interest
basically means you have a vested
interest or reason to take life
insurance out on a given person.
Dependents are usually close family
members for this reason. Why would
you take out life insurance on a family
spouse is probably more obvious than
children. The spouse may work and
therefore there's a classic
use of term life
of lost income. The company may
contribute towards the cost of the
dependent life insurance if not paying
100% of it since life insurance is so
inexpensive. What if you're the
sole provider for a family's income?
There's still a range of reasons to
purchase dependent life insurance for a
spouse...again depending on the
underlying cost. One reason is
final expense and this may fit very well
with the typically limited amount of
dependent life insurance available
through a group sponsored plan.
is a term used to address the costs
associated directly with the passing of
a person. This can include Funeral
expenses, travel, food, lost hours or
pay, and let's face...just the
transitional period that follows the
loss of a loved one. The amount of
dependent life insurance is usually
smaller than what's available on the
employee. For example, if the
company offers $50K to the employee, the
dependent coverage may be 1/2 or $25K.
This limited amount does not really
provide true term life insurance
protection for the more traditional uses
such as income replacement but may fit
well with final expenses.
Dependent life insurance on children is
a little different. There's likely
not income to replace with children.
In this case, it's more a final expense
usage and it's probably tougher to
justify dependent life insurance on
children unless it's incredibly
inexpensive if not free as a benefit
from the employer.
are two considerations when looking at
dependent life insurance offered through
your employer versus just purchasing
your own term life insurance plan.
The first is cost and the second is
eligibility. Let's look at the
second first as it becomes a litmus test
in some ways. Your dependents and
particularly, your spouse/domestic
partner may have health issues and not
be able to qualify for their own private
term life insurance. Group life
insurance may have the benefit of being
guaranteed issued depending on the size
of the group, company, etc. This
means group offered dependent life
insurance might be the ONLY option.
Assuming your dependents is in good
health and qualify for a stand-alone
life insurance plan, it then becomes a
question of cost and to some extent, the
right fit for your needs. If the
company is contributing towards the
plan, it might be hard to beat
price wise. You can run your own
insurance quote to compare
against the employer's option. If
the dependent coverage will only offer
$25K, that's not going to help much
according to the usual needs and uses of
life insurance. You can find more
information at our
insurance amounts article.
final consideration is that the group or
life insurance may be
contingent or dependent on employment.
This is probably the case. If you
leave the job or find yourself
terminated (both of which are pretty
common in the U.S. as people changes
jobs often), the coverage may end.
This means you are now having to buy
individual life insurance at an older
age and resultant higher rate.
This assumed you can qualify based on
health. We would be happy to walk
through your options to see how your
dependent life insurance fares against a
stand-alone life insurance plan.