Employee Death Benefit
When an accident or sickness results in the premature death of an employee there is an irreversible interruption of earnings. Before insurance, it was common to "pass the hat" and collect funds when a co-worker died to help with final expenses. Since half the Canadian workforce has no personal life insurance, workplace coverage is plays an important role in easing the transition for dependent left behind.
Employee group benefit programs often provide a basic amount of life insurance coverage ($25,000) for employees and occasionally for family members ($10,000 spouse and $5,000 per child). Coverage is usually provided to all employees regardless of their health condition. Employer contributions toward the cost of life insurance are a taxable employee benefit. Life insurance claim payments are not taxed.
Employee Group Accidental Death and Dismemberment Insurance (AD&D)
Employee group benefit programs often match the employee life insurance amount with AD&D insurance, occasionally referred to as double indemnity. The low risk of an employee dying accidentally, or losing a body part, is so remote that AD&D is the most profitable product for most life insurance companies.
Grouped Individual Life Insurance
Grouped individual life insurance policies can help stabilize benefit costs and provide employees with much needed security when they stop working. The fundamental principle of life insurance is the spreading of risk amongst a group of individuals, who each have a low probability of that occurrence taking place. When a person makes an individual decision to purchase life insurance, the insurer needs to make sure that the person does indeed have a low probability of death. They check the applicant’s medical condition as well as their medical, financial, personal, and family histories. The process is time consuming and intrusive. However, when a group of people make a decision to obtain life insurance, the insurer can expect a reasonable distribution of low, medium and high risks. Provided that a reasonable number of members participate, the standards for qualifying for coverage can be significantly reduced. The products typical used are: 10-year guaranteed renewable term insurance and 20-year guaranteed paid-up life insurance.
Canada Pension Plan (CPP/QPP)
The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) came into effect on January 1, 1966. The province of Quebec covers workers in Quebec and the Federal government covers workers in the rest of Canada. A death benefit of six times the monthly retirement income to a maximum of $2,500 is paid to the spouse or estate of the deceased contributor. A survivor's benefit is paid to the spouse of a worker who contributed for either one-third of the years in the contributory period or ten years. The amount is based on the age of the survivor and number of dependent children.
Each province requires certain industries to participate in a public run compensation scheme for work related illness and injury. Most provincial workers compensation benefit programs provide a modest death benefit of one or two thousand dollars when a work related illnesses or injuries results in death benefit of a covered employee. Some provinces provide survivor benefits for the spouse and children (under the age of 18) of the deceased worker.