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Dependent Life

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Does dependent life insurance make sense

It depends on what purpose it is bought for

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 life insurance 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.

Let's 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.  You can't purchase life 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 member?

A spouse is probably more obvious than children.  The spouse may work and therefore there's a classic use of term life insurance...the replacement 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.  Final expense 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.

There 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 term life 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 term life insurance amounts article.

A final consideration is that the group or employer sponsored 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.



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