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Life insurance is a relatively low cost benefit companies can provide their employees.  The typical benefit is a term policy that is in force until the employee terminates employment.
Although life insurance benefits require the death benefit to be taxed if the premiums are paid with pre-tax dollars, employees are generally allowed a tax-free death benefit up to $50,000.  If the company provides a death benefit exceeding $50,000, the employee may be required to pay taxes on the premium exceeding the $50,000 limit in order for the deceased estate to receive the death benefit tax-free. Life insurance on a group platform has some advantages over the policies purchased in the individual life insurance market.

Guaranteed Issue

Acquiring life insurance in the individual market will probably require medical underwriting. These may also involve paramed tests requiring blood and urine samples.  In most situations, group life insurance policies do not require specimen tests or medical underwriting.  Meaning every employee meeting the specific age requirements is eligible for life insurance without any questions asked.  If the life insurance benefit is entirely paid by the company, then all eligible employees are required to be covered.

Accidental Death and Dismemberment

A benefit commonly attached to group life insurance is Accidental Death and Dismemberment (AD&D) insurance.  For a small incremental cost (AD&D rates are much less than life insurance rates) AD&D coverage typically doubles the death benefit if an employee dies from an accidental death and also provides benefits from the loss of limbs and/or senses.  For relatively young people (ages 25-44), the probability is higher that a death would be due to accidental rather than from natural causes.1   
1 National Vital Statistics Reports, Volume 58, Number 19, May 20, 2010.   

Supplemental Insurance

If a company offers group life insurance, they can also offer supplemental life and AD&D insurance on a voluntary basis (paid for by the employee).  Again, because this is on a group platform, the employees will be offered an opportunity to increase their life insurance/AD&D with a portion offered on a Guaranteed Issue basis.  The premiums are typically on-par with the individual market to some point.  In most plans, as the death benefit increases, an individual term policy may be more cost effective depending in the individual’s health.  Most plans will also provide life and AD&D coverage to spouses and child dependents.

For more information, please contact Bridgeport Benefit Advisors.

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The material on this page is intended as general descriptions of the concepts presented.  It is for educational purposes only and it not intended to provide specific financial or tax advice.  These descriptions cannot take into account your specific conditions and situation including the data required for underwriting purposes, financial circumstances, risk tolerance, and other factors.