Lecture 7 Group Life Insurance: Term Coverage

1. Lecture 7Group Life Insurance: Term Coverage • Taxation • Contract Provisions • Added Coverages

2. Taxation • Employer • Premium payments are tax deductible • Employee or retiree • Premium payments are not tax deductible • First $50,000 of group term life insurance coverage is not taxable income • Coverage in excess of $50,000 group term is taxable income based on Uniform Premium Table 1 (see handout) • Dependents of employee or retiree • Only up to $2000 of group term coverage can be tax free • If coverage exceeds $2,000, entire coverage is taxable income based on Uniform Premium Table 1 • Any permanent insurance protection is taxable income • Life insurance benefits are not subject to federal income tax if paid in a lump sum

3. Examples 1. $100,000 noncontributory group term life for 30 year old employee for entire year 2000 Taxable income = 50 x .08 x 12 = 48 2. Same as #1, except employee paid $40 Taxable income = 48 - 40 = 8 3. $60,000 noncontributory group term life for 62 year old retiree for entire year 2000 Taxable income = 10 x .66 x 12 = 79.20

4. Benefit Schedules Earnings Position Flat-benefit Combination benefit Reduction in benefits for older employees Eligibility Covered classifications Full-time employment Actively-at-work Probationary periods Evidence of insurability Premium contribution Contract Provisions

5. Beneficiary designation Settlement options Premiums Assignment Grace period Entire Contract Incontestability Misstatement of age Termination Temporary interruption Disabled employees Conversion Accelerated benefits Contract Provisions - (cont.)

6. Added Coverages • Supplemental life insurance • Accidental death and dismemberment • Traditional coverage • Voluntary coverage • Dependent life insurance