Life insurance policyholders who want to purchase coverage for their spouse or child can typically do so by adding dependent life insurance coverage to their existing policy.
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Dependent coverage options vary by insurer and plan, but will typically limit the amount of coverage to a significantly lower amount than would be available through an individual policy. Though coverage for dependents can be added to both individual and group life insurance policies, voluntary dependent life insurance typically refers to coverage obtained through a person's employer.
How Does Voluntary Dependent Life Insurance Work?
Voluntary dependent life insurance, also called dependent group life insurance, is often made available as part of a benefits plan through employers. Dependent insurance can cover your spouse, children and any other eligible dependents, depending upon the rules laid out in the plan. If a covered dependent dies, you would receive the dependent life insurance policy's face value as the death benefit, as the employee is automatically designated as the beneficiary.
Similar to health insurance, group and dependent life insurance can only be purchased during open enrollment or after certain qualifying events, such as being hired or getting married. And unlike an individual life insurance policy, if you elect for dependent life insurance, coverage may not begin immediately. For instance, if you decide to purchase coverage for your spouse during open enrollment, the policy may not go into effect until Jan. 1.
Depending upon when you opt in for dependent life insurance coverage and the amount of coverage you want to purchase, you may have to provide evidence of insurability for your dependents. This usually just requires you to complete forms answering basic health and medical questions about your family, so the insurer can evaluate their risk.
Coverage Options and Cost of Dependent Life Insurance
Dependent coverage is generally offered in increments of a certain dollar amount, such as $2,000 or $10,000. So, for instance, a plan might let you purchase up to $10,000 of dependent insurance per child in increments of $2,000—meaning you can purchase either $2,000, $4,000, $6,000, $8,000 or $10,000 of coverage per child. Every dependent life insurance plan will specify a maximum amount of coverage per eligible dependent, generally with higher limits for spouses than children. But your dependent coverage options may also be limited by the amount of group coverage you purchased for yourself. Their maximum coverage is often limited to between 50% to 100% of your own supplemental coverage.
Dependent life insurance can be purchased just for your spouse, just for your children or for all eligible dependents, but most plans' rules don't allow you to specify a single child to be covered. However, this doesn't impact the cost—all children are usually covered for the same rate as covering a single child, and the dollar amount is simply determined based on the amount of coverage purchased. Rates for supplemental spouse life insurance will generally be higher, as adults are considered higher risk to pass away, and will vary depending upon the amount of coverage purchased as well as your spouse's age.
As an example, the monthly premium for your children's coverage may be consistently $0.15 per $1,000 of coverage, meaning $10,000 of coverage would cost $1.50 per month. Whereas your spouse's pricing would like be $0.60 per $1,000 of coverage each month, with price increases every five years as your husband or wife gets older.
Premiums for dependent coverage, as well as the cost of any voluntary life insurance you've purchased on yourself, are automatically withheld from your paycheck on an after-tax basis.
Dependent Coverage After You Leave an Employer
Child life insurance policies typically cannot be converted, so when a child's eligibility for dependent insurance ends, they will simply no longer have life insurance. Dependent life insurance policies for spouses, on the other hand, often come with a conversion option which can be used if:
- You retire, quit or are terminated from your position
- You divorce your spouse
The conversion option allows your spouse to maintain life insurance coverage without demonstrating proof of insurability by converting the dependent policy to an individual life insurance policy. Your options will likely be limited in terms of which insurers the new policy can be taken out with and the types of policy you can convert to. For instance, you may only have the option to convert to a permanent life insurance policy, such as whole or universal life insurance.
In some cases, employers offer the option of continuing a dependent life insurance policy past an employee's date of retirement, so long as they've met certain age or tenure requirements. However, this is not common, and we'd recommend confirming with your plan administrator about whether your family would qualify.
Who Qualifies as a Dependent for Life Insurance?
In order to purchase dependent coverage on a person, they must first qualify as a dependent according to the definitions in your group life insurance plan. Most plans allow you to add dependent life insurance for your children and spouse, so long as they meet certain requirements. For example, similar to health insurance, many supplementary life insurance plans only consider children to be dependents until they reach the age of 26. Some group plans also allow you to purchase life insurance for other adult dependents, although this is less common.
|Who can qualify||Common restrictions|
|Spouse||The definition of a spouse for supplemental life insurance usually includes anyone who is recognized as your husband or wife by state law. It can also include a common-law spouse if the marriage was legally recognized by your jurisdiction. A domestic partner may not be considered a spouse and, if so, wouldn't be eligible for dependent life insurance unless your plan also allows for coverage of other adult dependents.|
|Children||A dependent life insurance policy may cover your biological children, stepchildren, legally adopted children or any child for which you have legal guardianship. Typically, insurers only offer coverage until the child reaches a certain age, which can be 26, as it is in medical insurance, or another specified age, such as when the child turns 20. Children who are older than the maximum age may continue to be considered as dependents for life insurance in certain limited situations, such as if they're mentally or physically disabled, or are a full-time student. In these cases, you'll need to provide proof of their disability, such as a physician's statement, and the child usually won't qualify as a dependent if they're married. The child would also need to be supported by you, so you would claim them as a dependent when filing taxes.|
|Other adult dependents||Any other dependents, such as a domestic partner or elderly parent, may be eligible for dependent life insurance, though you'll need to refer to the terms of your benefits plan to confirm this, as it's not common. If other dependents are eligible, they'll typically need to live with you, be directly financially dependent on you or interdependent with you, and unmarried.|
In addition to the above, a common restriction on dependent life insurance is that it cannot be duplicative with another policy under the same group life insurance plan. For example, if you and your husband are both employed by the same company, and he already has group life insurance as an employee, he would not qualify for dependent life insurance as well. Similarly, if you had children, either you or your husband could purchase dependent child life insurance on them. You would not be allowed to have two policies from a single company's group life insurance plan that covered the same child.
Military Dependent Life Insurance
If you're on active duty in the military or otherwise qualify for Servicemembers' Group Life Insurance (SGLI), your dependents may qualify for coverage through Family Servicemembers' Group Life Insurance (FSGLI). FSGLI is essentially term life insurance for dependents of members of the military, meaning you must be either:
- An active duty servicemember
- A member of the National Guard
- A member of the Ready Reserve of a uniformed service
Military dependent life insurance is limited to your spouse and children who are either under the age of 18, full-time students, or permanently and totally disabled. In order to qualify, you must already have full-time SGLI. If you have part-time SGLI or Veterans' Group Life Insurance (VGLI), your family members will not qualify. Coverage is issued in increments of $10,000, and the maximum amount of coverage per child is $10,000. The maximum coverage for your spouse is the lesser of $100,000 or the amount of SGLI coverage you carry.
FSGLI dependent life insurance is free for your dependent children, while the cost to cover your spouse will vary according to your spouse's age and the amount of coverage purchased. Beginning at age 35, every five years, the cost for the same amount of supplemental spouse coverage will increase. For instance, if your wife is currently 34 years old, the cost for $100,000 of dependent life insurance would only be $5 per month. In five years, when she's 39, the same amount of coverage would cost $6.50 per month.
If you cease to be a member of the military, divorce your spouse or end your own SGLI coverage, your spouse's FSGLI military dependent policy can be converted to an individual whole life insurance policy. This can only be done through certain insurers that are partnered with the SGLI program and may not include benefits that were part of the FSGLI policy, such as accidental death and dismemberment coverage. However, it will allow your spouse to continue their life insurance coverage without needing to requalify and demonstrate proof of insurability, which can be beneficial if they're older or have been diagnosed with a condition. FSGLI coverage for dependent children cannot be converted to an individual policy.
Is Dependent Life Insurance a Taxable Benefit?
Dependent life insurance is not considered a taxable benefit from your employer if you pay for the entirety of the coverage. If your employer pays for part, or the entirety, of the dependent life insurance coverage, it's also not considered a taxable benefit so long as the face value of the employer-paid coverage is less than $2,000. Tax law considers up to $2,000 of employer-paid dependent life insurance per dependent to be a de minimis fringe benefit, so the cost of it wouldn't be considered taxable for the employee.
However, if your employer pays for over $2,000 of life insurance for any single dependent, the entire cost of the policy is typically considered a taxable benefit. The taxable cost of the life insurance is determined based upon the IRS' premium tables, which standardize the value based upon the amount of coverage provided and the age of the person insured. In some cases, the amount of dependent life insurance considered to be a fringe benefit may be greater, so you should consult a tax expert if this case applies to you.