Survivor Benefits - getting through tough times

Death Benefits

Income Replacement

Multiple of Earnings Schedule

Some employers provide a multiple of annual earnings (i.e. 1-5 times) as employee life insurance in order to provide replacement income for dependents during an adjustment period.

Level Benefits

Some employers provide level life insurance coverage (i.e. $25,000 - $100,000) for various classes of employees in order to provide replacement income for dependents during an adjustment period.

Innovative Schedule

If life insurance replaces income lost as a result of premature death, then the schedule should reflect the lost income opportunity.

In the same way that employees who are disabled 30 years before normal retirement age receive more long term disability benefits than if they had been closer to retirement, younger employees should receive more life insurance coverage than those closer to retirement.

The challenge is to give staff the coverage they want without negative tax consequences. One method is to pay 50% of the optional life insurance premium up to 50% of annual earnings multiplied by the number of years remaining until normal retirement age.

This way employees who have dependents and need to replace income lost through premature death will select the optional coverage. Another advantage is that the cost of insurance represents the individual risk. The unit cost increase resulting from aging is offset by the volume reductions resulting from approaching retirement age. This schedule should be in addition to a basic amount of employee life insurance designed to cover final expenses.

Taxation

employer costs are tax deductible
employer cost are a taxable benefit to employees
employee costs are not tax deductible
claim payments are non-taxable

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