LIFE INSURANCE
Group Life Insurance Benefits play a significant role in providing financial support and peace of mind for employees and their families in the event of a tragic death. In addition to valuable financial protection, plan members can use their life insurance benefits for many things including:
- Funeral costs
- Income replacement
- Mortgage payments
- Children's education
- Probate fees
There are several components to Group Life Insurance - Employee Life Insurance, Dependent Life Insurance, Optional Life Insurance, Spousal Life Insurance, and Terminal Illness or Living Benefit.
Employee Life Insurance pays a pre-specified amount in the event of the death of an employee from any cause. The premiums paid by an employer on behalf of an employee are a taxable benefit, but the benefits received are non-taxable only if paid to a preferred beneficiary or charitable organization.
Dependent Life Insurance provides financial protection to an employee if his/her spouse or child dies. The benefit is paid in a lump sum regardless of the cause of death and is designed to pay for illness and funeral expenses, not as a replacement for lost future income.
Optional Life Insurance is term life insurance that is available in addition to Employee Group Life Insurance, giving plan members the opportunity to add more coverage. By combining Employee Group Life Insurance with Optional Life Insurance a plan member can obtain the amount of coverage that he/she requires in order to provide:
- Income to maintain the family's current lifestyle
- Money for a child's education
- A non-taxable payment to a preferred beneficiary
Spousal Life Insurance is life insurance for the spouse of a plan member. The costs of spousal insurance are entirely paid by the plan member.
Terminal Illness or Living Benefit will advance the plan member 50% of the Group Life Insurance amount (to a pre-specified maximum) upon proof of diagnosis of a terminal illness where a plan member's life expectancy is 12 months or less.
What is a Beneficiary? A beneficiary is a person who receives the death benefits from a life insurance policy. Proceeds of a life policy are received tax free in the hands of a named beneficiary.
What is a Preferred Beneficiary? If the beneficiary is a spouse, parent, child or grandchild, then they are considered to be the "preferred beneficiary". If the insured has a preferred beneficiary, the benefit is protected from any creditors.
What is a Primary Beneficiary? The "primary beneficiary" is the person who is the first choice to receive the death benefit. More than one person may be designated as the primary beneficiary, depending upon the policy.
What is a Contingent Beneficiary? A person who will receive the death benefit of a policy if the primary beneficiary dies before or at the same time as the insured is called the "contingent beneficiary". For example, should both a husband and wife die in the same accident, the death benefits would by default go to each estate, and creditors could make claims against the estates. However, a child could be the contingent beneficiary, in which case creditors could not make claims against the death benefit. If the child is a minor, an adult would need to be named as a trustee to receive the funds in trust for the child, since insurers do not pay proceeds to a minor.
Choosing a Beneficiary - The following lists and briefly discusses possible beneficiaries of a life insurance policy. This should only be used as a general guide line, and is merely informational in nature.
- Spouse: The most common beneficiary is the spouse.
- Child(ren): Children can be beneficiaries. If they are over 18 years of age they do not require a trustee.
- Parent(s): Parents are often designated as beneficiaries, possibly because the insured is single with no children and wants protection against funeral expenses or in case the insured and his/her spouse die, leaving parents to take care of the children.
- Friends: Friends can be made the beneficiary of a life insurance policy. This is common when the insured does not have immediate family.
- Charities: Charities can be made the beneficiary of a life insurance policy. This is common when the insured does not have immediate family.
- Estate: The estate can be named as beneficiary, in which case the proceeds are subject to probate fees. Hence named beneficiaries are preferred.
Contact the Blevins Team for more information.
