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Wendy Matton

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Many initially feel that life insurance is not a necessary component of a group plan, citing that they already have some in place. However, as discussions deepen, the number of individuals who don’t know what or how much coverage they have in place is surprising. And, in many instances, they have “mortgage” insurance (bank’s description) whereby the bank, (not a loved one) is the beneficiary.

 

Why Group Life Insurance?

Group life insurance is low in a cost. Plus, depending on the group size, medical underwriting may not be required which can be extremely important to employees who may otherwise be uninsurable. Within group plans, the life insurance component is often mirrored with accidental death & dismemberment which means that double the benefit will be paid if the death is accidental.

 

Common Structure Of Group Life Insurance Offerings

While flat amounts are available, as part of compensation, it is not unusual to provide a life insurance benefit based on an individual’s earnings. In larger groups, you may opt for differences in that option between different subgroups or ‘classes’ of employee. For example, senior roles within the organization that have a larger impact on the company’s financial outcomes may have a benefit that is 2x or 3x of their annual earnings.

 

Taxability Of Benefits & Probate

Life insurance premiums paid by the employer on the employees’ behalf is considered a taxable benefit. This simply means the premium is subject to income tax and will show up in box 40 of their T4 slip. The payout of these benefits, however, are tax-free to the beneficiary and they’re not subject to probate.

Two important caveats to this are when there is no named beneficiary and a minor being designated a beneficiary without a named trustee. In the first example, when there is no named beneficiary, a life insurance benefit is paid out to the estate and becomes subject to probate. Additionally, where the beneficiary is a minor and there is no named trustee, there can be months of delay and legal proceedings in order to have a trustee named after the fact and recover the benefit.

 

When you consider the nominal cost to your organization, whether you are providing a flat $25,000 - $50,000 or an earnings-based life insurance benefit, when you’re dealing with grieving families, as an employer, you have a large impact when you help them through the worse situation their family has to encounter.

Wendy Matton

Wendy has nearly 40 years of experience in the financial services sector. She began in banking and moved on to Bay St. trading in fixed income, currency and commodities, to management. The next phase was spent in sales and advisory roles as an independent financial and insurance advisor. She has spent the last 15 years as a consultant in the employee benefits industry. Wendy enjoys going on gal-pal road trips with her daughter visiting theatres and B&Bs across Ontario. When not hosting a “Scuff ‘n’ Scoff” with her hubby and musical friends, her most treasured moments are outdoors, back in the hills of Newfoundland on a ski-doo or on a pristine lake with her dad, in a canoe.
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