Losing a family member can be both emotionally and financially devastating. Life insurance can provide a measure of relief from the financial impact, and in the case of a dependent, provide funds to cover final expenses. Dependent life insurance is supplemental insurance many employers provide as part of your employee benefit package.
Identification
Insurance companies can use differing terms to identify dependent life insurance. Alternate titles include "Family Benefit Coverage" or "Spouse and Children's Insurance Rider." Dependent life insurance is not available for purchasing privately. You can generally obtain dependent life insurance only if your employer provides for it in a benefits package. In addition, you must meet eligibility requirements according to employment status and participate in your employer's insurance plan to purchase or receive supplemental dependent life insurance.
Purpose
Dependent life insurance is supplemental, term insurance designed to be an additional resource for you in the event one of your dependents dies. Common reasons for purchasing dependent insurance include replacing lost income or to cover final expenses. Rather than providing for long-term financial needs, this insurance is more appropriate to view as a transitional resource that can help cover immediate and short-term financial needs.
Requirements
Most insurance companies define the term "dependent" as a person you have an "insurable interest" in, such as a spouse, child or, in some cases, a domestic partner. Insurable interest means you must have a specific reason for wanting or needing to establish the insurance policy. Most policies place age limitations on dependent children. Depending on the insurance company, this can be from 2 weeks to 6 months of age before a policy can start, to a maximum age of 19 to 26 years if enrolled in school on a full-time basis.
Benefits
Dependent life insurance benefits are lower than benefits available to you and depend on whether the insured is your spouse or domestic partner, or a child. In most cases, benefits for spouse coverage cannot exceed a percentage, usually 50 percent, of the amount of insurance you choose for yourself. For example, if you choose a life insurance benefit of $100,000 for yourself, the maximum dependent life insurance you could obtain for your spouse would be $50,000. You would then choose the option closest to this that your employer provides. Dependent benefit amounts are usually in set amounts that range from $5,000 to $10,000.
Cost
Some employers provide dependent life insurance as a "free" benefit, while others provide this insurance as a benefit option requiring employee contributions. The cost to purchase depends on the employer and plan but is generally a set amount for children and for a spouse, an amount based on your age or your spouse's age. Employer contributions to dependent life insurance costs can have an effect on your taxable income. If your employer provides more than $2,000 toward the cost of dependent life insurance premiums, the excess amount is a taxable fringe benefit and you must declare and pay tax on the amount.
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