Customizing Your Employee Life Insurance Protection |
Posted: May 20, 2024 |
Optional life insurance through your employer provides extra customized coverage. Review amounts based on financial obligations. Maintain affordability by converting policies when leaving jobs. Read more: https://ebsource.ca/employee-optional-life-insurance/ Employee Optional Life Insurance: The Ins and Outs for Canadians While basic group life insurance offers foundational protection, employee optional life insurance allows Canadian workers to customize coverage for their unique financial obligations. This voluntary benefit provides invaluable supplementary death benefit protection. This in-depth guide will explain everything Canadians should know about optional employee life insurance. We’ll explore how it works alongside basic life, costs, eligibility requirements, coverage amounts, beneficiaries, tax implications, enrollment tips, and factors to consider when deciding on the right level of protection. Read on for comprehensive insights into maximizing this employer-sponsored opportunity to safeguard your family’s financial future. What is Employee Optional Life Insurance? Optional life insurance is an additional layer of term life insurance that employees can voluntarily elect through their employer, beyond the basic life insurance policy. The death benefit payout is issued to the designated beneficiary if the insured employee passes away while enrolled in the optional coverage. It provides a customizable supplemental amount of protection that enhances the core life insurance. Unlike basic life insurance which provides a set benefit amount, usually 1-2 times annual earnings, optional life allows employees to select a personalized coverage amount to meet their specific protection goals and financial obligations. Policies will define the available coverage increments, such as units of $10,000, up to a maximum benefit limit, such as $500,000. This enables aligning total coverage with individual needs. How Employee Optional Life Insurance Works Here’s an overview of how optional life insurance functions: Eligibility Employees must first be enrolled under the employer’s basic group life policy. There is often a waiting period of 30-90 days for new hires before qualifying for optional coverage. Employees must be actively working to apply. Those on disability/leave don’t qualify until returning to active duty. Applying for Coverage During initial enrollment or at open renewal periods, employees select their desired amount of optional life insurance, from the minimum up to the policy maximum (e.g. 1 to 10 units of $50,000 for up to $500,000). This becomes the death benefit amount. Beneficiaries are also designated - individuals who will receive the payout. Underwriting Approval Insurers require medical underwriting for higher coverage amounts, involving health questionnaires or exams. Some plans allow guaranteed issue amounts without underwriting. Premium Payment Workers pay 100% of premiums for optional coverage through payroll deductions. Monthly costs vary based on benefit amount, age, gender, smoker status, and health. Ongoing Administration Coverage continues automatically while paying premiums and remains active under the group policy. Beneficiaries can be updated as needed. Leaving Employment Workers can convert optional life to individual policies when leaving to maintain the death benefit. The added layer of optional life insurance enables aligning total coverage with financial obligations to family and dependents. What Does Optional Life Insurance Cover? Optional life insurance provides essential tax-free funds that beneficiaries can utilize for a variety of significant financial needs if the insured employee passes away unexpectedly, including: - Paying off outstanding debts like mortgages, loans, credit cards, personal lines of credit - Covering final expenses like funeral and burial costs, estate administration fees, probate, unpaid medical bills - Funding daily living costs like housing, utilities, groceries - Paying tuition for children’s education - Replacing lost income from the employee for spouses/dependents - Supporting aging parents who relied partially on the employee’s earnings - Paying costly end-of-life medical bills - Donations to charitable foundations or causes in the employee's name Thoughtfully purchased optional life insurance proceeds can prevent uncovered expenses from becoming suddenly unmanageable burdens on survivors. Determining Coverage Needs Because optional life offers customizable benefit amounts, take time to evaluate specific insurance needs based on obligations and goals: - Do projected living expenses like housing, utilities, and other costs exceed anticipated sources of income for dependents? Optional life covers shortfalls. - Will the death benefit from basic life insurance sufficiently pay down all outstanding debts? If not, optional life provides extra funds. - Are there sizeable anticipated near-term costs like college savings for children that life insurance proceeds could prefund? - Does your spouse or family rely on your income that would be lost upon premature death? Optional life helps fund ongoing costs. - Are there aging parents partially dependent on your income to sustain their lifestyles? Ideally, total life insurance equaling 10-15 times gross annual income offers an adequate starting point for most families. An insurance advisor can provide guidance tailoring appropriate amounts. Unlike costly individual life insurance, optional life cost-effectively closes gaps in protection during your working years when dependents need you most. Who Pays Optional Life Insurance Premiums? Optional life insurance is a 100% employee-paid voluntary benefit. Those who elect coverage pay premiums through convenient payroll deductions, which enables building adequate protection while smoothing costs over time. Monthly premium amounts will depend on: - Benefit amount - More coverage equals higher premiums - Age - Premiums rise with age brackets as risk increases - Gender - Statistically females have lower mortality rates - Health class - Underwriting means those in poor health pay more - Smoker status - Smoker rates are considerably higher - Employer policy - Factors like guaranteed issue amounts affect pricing Typical monthly premiums range from $0.05 - $0.30 per $1,000 of coverage depending on demographics above. Managing Optional Life Insurance Regularly review optional life insurance coverage and beneficiaries: - When major debts are paid off or new ones incurred - With new dependents like marriage, children, or aging parents - If income or expenses rise/fall substantially - At annual benefits renewal when amounts can be adjusted - If health changes, as higher amounts often require re-approval - When changing jobs, to understand conversion and portability options Having adequate optional life insurance brings invaluable peace of mind. An insurance advisor provides guidance optimizing protections as life circumstances evolve. Taxation of Optional Life Insurance Benefits Unlike some other benefits, optional life insurance provides beneficial tax treatment: - Employer-paid basic life insurance premiums are not taxable income for employees. - Employees' optional life insurance premium payments are made with after-tax dollars. - Optional life insurance benefit payouts to beneficiaries are completely tax-free. This enables maximizing coverage affordably. Compare this to taxable payouts on some permanent life or annuity policies. Choosing Beneficiaries Employees with optional life insurance will designate primary beneficiaries who receive payouts in the event of death. Contingent beneficiaries are secondary recipients if no primary beneficiary survives. Typical beneficiaries include: - Spouses or common-law partners - Minor children or adult children with special needs - Parents or siblings - Friends or other family members - Charities/foundations - Estates or trusts Review beneficiaries whenever life circumstances change. Benefits are distributed based on the most current form, excluding any ex-spouses. Underwriting and Approval Process Insurers require medical underwriting before approving optional life coverage, which involves: - Completing detailed health questionnaires - Providing medical records from your doctors - Undergoing paramedical health exams with bloodwork in some cases This allows assessing insurability and identifying any health conditions that may shorten life expectancy. Based on the underwriting review, the insurer will either approve standard rates, decline coverage, or approve with rated premiums due to higher risks. Many policies allow a guaranteed issue amount like $100,000 without the full underwriting requirement. However, any amounts above that threshold request evidence of insurability to qualify. Getting underwritten while younger and healthier makes coverage more affordable. Why Portable Coverage Matters If you leave your employer, convert optional life insurance to an individual policy. This becoming more essential given average Canadian job tenures under 5 years and shifting to multiple career employers. Benefits of porting include: - Locking in insurability if health later changes - Maintaining younger-age premium rates - Continuing coverage with no gaps Term life rates rise significantly at older ages. Porting employer coverage avoids losing coverage and unaffordable new policies. Partnering With an Insurance Advisor Given the complexities of optional life insurance, partnering with an experienced insurance advisor offers benefits: - Help determining adequate benefit amounts - Guidance choosing appropriate coverage additions like disability waivers - Managing the application and underwriting approval process - Recommending the best carrier options for your situation - Assisting with policy changes and beneficiary updates - Ensuring you don’t lose coverage when changing jobs - Providing ongoing policy reviews and checkups Good advisors make insurance simple and provide invaluable peace of mind that your family is protected. The Takeaway on Optional Life Insurance
While basic group life insurance supplies foundational coverage, optional employee life insurance enables Canadians to customize higher benefit amounts aligned with specific financial obligations. Take advantage of this employer-sponsored opportunity to supplement core protections and provide peace of mind. Read More: https://ebsource.ca/employee-optional-life-insurance/ #EBsource #EBsourceCanada #EmployeeOptionalLifeInsurance
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