Life Insurance For Dependents: Who And What Is Covered?

Dependent life insurance is a type of insurance that provides financial benefits to the policyholder in the event of the death of a designated non-income-earning dependent, which could be a spouse, domestic partner, or child. This type of insurance can be purchased as an addition to an existing individual or group life insurance policy or obtained through an employer's group benefit plan. The cost of dependent life insurance varies based on the age and number of dependents, with spouses typically costing more than children due to older age and increased risk. While dependent life insurance provides valuable financial support during difficult times, it is important to consider the potential limitations, such as coverage restrictions and tax implications, when making decisions regarding this type of insurance.

Who is eligible for dependent life insurance?

Dependent life insurance is often provided by employers or through joint life insurance policies. It is a type of life insurance that pays out a death benefit if a covered dependent, such as a spouse or child, passes away.

Dependent life insurance is typically available for spouses and children. In some cases, other adult dependents may also be eligible, but this is less common. To be considered a dependent, a person must meet the eligibility requirements set by the insurance provider or the specific group plan.

For children, this usually means they must be under a specified age, such as 18, 19, 21, or 26. In some cases, older children with disabilities or those who are full-time students may also qualify as dependents. Biological children, stepchildren, and legally adopted children are generally eligible for coverage, as well as any child for whom the insured is a legal guardian.

Spouses are usually defined broadly and can include common-law spouses, as long as they are recognised by state law. However, domestic partners may not always be recognised as qualifying spouses, depending on the specific group plan.

In the case of military members, dependent life insurance is available for spouses and children under the Family Servicemembers' Group Life Insurance (FSGLI) program. This program covers spouses and dependent children who are under 18, full-time students, or permanently and totally disabled.

It is important to note that dependent life insurance is typically only available if the primary policyholder is also insured. Additionally, there may be restrictions on having multiple policies from the same company covering the same dependent.

Enrolling in dependent life insurance:

Dependent life insurance is often available as a voluntary benefit through an employer's group benefits plan. Similar to health insurance, dependent life insurance can usually only be purchased during open enrollment or after qualifying events, such as getting married.

When enrolling in dependent life insurance, it is essential to review the specific eligibility requirements and coverage limits of the plan.

What are the costs?

Dependent life insurance is often provided by employers or can be purchased as a standalone policy or an add-on to an existing individual insurance policy. The costs of dependent life insurance vary depending on the type of policy, the number of dependents covered, their age, and the amount of coverage. Here is a breakdown of the costs:

• Group dependent life insurance: This type of insurance is typically offered by employers as part of their benefits package. The cost of group dependent life insurance is usually quite low, ranging from just under a dollar to just over two dollars per employee. This type of insurance often covers multiple dependents, including spouses and children, and provides a lump sum payment to the employee in the event of a dependent's death.
• Employer-sponsored dependent insurance: This type of insurance is offered by employers as part of their group life insurance benefits. The cost of coverage varies by employer, but it is typically deducted from the employee's paycheck. For children, the coverage usually ranges from $5,000 to $20,000, while death benefits for spouses are higher to cover end-of-life expenses, income replacement, or other costs associated with their loss.
• Traditional life insurance policy: A non-income-earning partner can purchase their own life insurance policy, either term or permanent. This option typically requires a medical exam for coverage. The cost will depend on the age and health of the dependent, as well as the amount of coverage desired.
• Joint life insurance policy: This type of policy covers both spouses and is usually more cost-effective than buying two separate policies. There are first-to-die and second-to-die policies. The surviving spouse in a first-to-die policy will need to purchase a new policy to pass a death benefit to other beneficiaries.
• Whole life insurance for children: This is a standalone policy that offers coverage for a child's entire life. The cost will depend on the child's age, health, and the amount of coverage desired.
• Term riders on parent policies: This option allows parents to add their children to their insurance policy for an additional fee, which is often more cost-effective than a standalone policy. The cost will depend on the number of children covered and the amount of coverage desired.
• Supplemental spouse life insurance: This type of insurance tends to cost more than child coverage because adults are at a higher risk of passing away. Rates vary by the amount of coverage and the spouse's age. The older the spouse, the higher the premium.
• Military dependent life insurance: If you are in the military, your dependents may qualify for coverage through the Family Servicemembers Group Life Insurance (FSGLI) program. FSGLI is free for dependent children, but there is a cost to cover a spouse, which increases with age and the amount of coverage.

It is important to note that dependent life insurance is not always taxable. If you pay for the coverage yourself, it is typically not taxable. If your employer pays for part or all of the coverage, it may be taxable if the value exceeds a certain threshold, such as $2,000 in the United States.

What are the benefit amounts?

Dependent life insurance is an employee-sponsored benefit that provides a lump sum of money to an employee in the event of the death of one of their dependents. The employer can choose how much they would like the benefit amount to be, and coverage is usually provided in conjunction with life insurance. The benefit amount is typically determined by the employer and is often within the range of funeral and burial expenses, which average $7,848 according to the National Funeral Directors Association. Most group dependent life policies offer coverage in thousand-dollar increments, such as $4,000, $6,000, $8,000, and so on.

The benefit amount for dependent life insurance varies depending on the age and type of dependent. The coverage limits for this type of insurance are usually low and intended to cover final expenses. The death benefits for children's coverage are typically small, ranging from $5,000 to $20,000. However, the death benefit for a spouse may be significantly higher, with a median of $100,000 in the large employer market and the top quartile offering $250,000 and above.

The maximum coverage limit per child is often $10,000, while the maximum coverage for a spouse is usually higher. For military members with Servicemembers' Group Life Insurance (SGLI), the maximum coverage limit per child is $10,000, and the maximum coverage for a spouse is $100,000 or the amount of their SGLI coverage, whichever is lesser.

The cost of dependent life insurance depends on the amount of coverage and the age of the dependent. The premiums are generally higher for spouses than for children due to the increased risk associated with age. The rates for spouse coverage may increase every five years as they age. For example, the monthly cost for spouse coverage might be $.06 per $1,000 of coverage for spouses aged 25-29, and this may increase to $.31 per $1,000 for spouses aged 50-54.

In summary, the benefit amounts for dependent life insurance vary depending on the employer's chosen coverage, the type of dependent, and the age of the dependent. The coverage limits are typically low and intended to cover final expenses, with the average cost of a funeral and burial being $7,848. The death benefit for a spouse may be higher than that of a child, and the cost of coverage increases with the age of the dependent.

What are the evidence of insurability requirements?

Evidence of Insurability (EOI) is a key part of the process of applying for dependent life insurance. It involves submitting details about the health of the applicant and their dependents to the insurance provider for approval before coverage can begin. This is done through an EOI form, which is a comprehensive medical questionnaire. The form may also require additional steps, such as a physical examination or bloodwork.

The EOI form is typically required in three scenarios:

• Late Applicant: If an applicant misses the initial 31-day window to enrol in their employer's benefits plan, they are considered a late applicant and must submit an EOI form.
• Coverage above the Non-Evidence Maximum (NEM): The NEM is the highest amount of coverage that can be enrolled in without an EOI form. If the applicant's income level qualifies them for coverage above the NEM, they must submit an EOI form for the additional coverage.
• Optional Coverage: Optional benefits provide extra coverage beyond the basic benefits provided. As these benefits have a very low NEM, an EOI form is almost always required when enrolling in optional benefits.

The EOI form includes questions about personal identification, current coverage details, requested new coverage, existing medical conditions, dates of diagnosis and treatments, and contact information for care providers.

It is important to note that any requested information must be provided in full and be as accurate as possible for the application to be approved by the insurance provider.

What are the enrolment procedures?

Enrolling in dependent life insurance can be done by adding coverage to an existing individual or group life insurance policy. This is often done through an employer's benefits plan, referred to as voluntary dependent life insurance or voluntary group life insurance. Similar to health insurance, dependent life insurance can only be purchased during open enrolment or after qualifying life events, such as getting married or having a child.

The amount of coverage available for dependents is typically lower than that of an individual policy and is offered in increments of a certain dollar amount. For example, a plan might allow you to purchase up to $10,000 of dependent insurance per child, in increments of $2,000. The maximum amount of coverage per eligible dependent varies by plan and is usually higher for spouses than for children.

To enrol, you may need to provide evidence of insurability for your dependents by answering basic health and medical questions. The cost of premiums will depend on the amount of coverage and the age of the dependent, with rates increasing as the dependent ages. Premiums are typically paid through after-tax payroll deductions.

It's important to note that dependent life insurance policies often have limits on how specific dependents are covered. For example, dependent coverage for children is usually offered only until they reach a certain age, often 26. Additionally, there may be restrictions on duplicating coverage under the same group life insurance plan.

Frequently asked questions