Term Life Insurance Articles
Limits To Term Life Insurance Provided By Employers
2010-07-21
A company may provide group term life insurance to members of said group because of a relationship to the place of employment or profession. It is employer provided insurance and included in the benefit package. Employees erroneously consider this coverage sufficient and cerebrate that obtaining additional term life insurance quotes to augment or supplement this coverage is unwarranted. However, there are limitations to employer provided insurance, considered a "fringe benefit" or form of payment for acting in the subscribed capacity and performing the duties of employment. Limitations can include a definitive regarding the face or death benefit, eligibility restrictions, and term conditionals that constrain the capacity of this coverage.
Employer provided insurance is indemnification against financial loss in the event of death of the employee; it does not accrue cash or loan value. Employers stereotypically institute a face amount limitation of $50,000 to render the benefit "exempt" and therefore, not federally taxable. Additionally, the employer limits the amount of coverage representative of two times the annual salary in order to remain tax exempt. Furthermore, polices with a $50,000 face amount limitation quintessentially do not require a medical history evaluation by underwriting. Policies over $50,000 require employees to provide extensive medical history information and submit to medical examinations.
In fact, employers offer extended retiree group life insurance benefits that include term limitations with a decreasing face amount codicil. For example, one minister had a $100,000-group term life policy but was unaware of an inclusion of an age limitation specification that changed the coverage at age 75 to a decreasing term policy. The face amount would decrease appreciatively every year the policyholder lived past the specified age. After 77 years as active, productive senior minister, he died at 91, he died; his beneficiary received a death benefit of $15,000. Another employer provided insurance; face amount $50,000 also had a term limitation. Upon his death, his beneficiary received $3,742.00. Longevity has its place, but it is not rewarded or celebrated in employer provided group term life insurance.
Employees should investigate the employer provided insurance eligibility limitations. Often spousal coverage is restricted to 50% of the employee's benefit and minor dependent coverage is a firm amount such as $2,000.
Employer provided insurance benefits should be supplemented; the policyholder should obtain additional term life insurance quotes for primary coverage to protect and ensure the financial future of survivors when the need arises. It has been aptly stated, and is unequivocally true that" anything appearing to be too good to be true usually is;" this sage wisdom is applicable to employer provided term life insurance as well.
