What Is Dependent Life Insurance?

Dependent life insurance is a type of life insurance you may not have encountered, but which could be good to investigate. Life insurance is designed to provide financial resources in the event that the insured person — often the policyholder — dies while the policy is in force. Dependent life insurance, on the other hand, offers coverage for a dependent, who is generally a spouse, domestic partner or child. Dependent life insurance may be a benefit offered by an employer as part of a group life insurance package. It’s also commonly available for members of the military. In this guide, Bankrate’s insurance editorial team details the pros and cons of dependent life insurance to help you understand if it’s right for you.

What is dependent life insurance?

When most people purchase life insurance, they seek a policy designed to compensate their beneficiaries for lost income and support in the event the insured party dies. A less common option for life insurance is basic dependent life insurance. This type of life insurance is tailored to pay death benefits if a covered spouse, child or other dependent passes away. Dependent life insurance can be inexpensive for a child while it is typically priced higher for a spouse due to older age and increased risk.

Few people want to think of a spouse or child predeceasing them, much less make plans for the possibility. However, there are financial obligations like funeral and burial costs that may be worth consideration. Most often, dependent life insurance is obtainable through an employer’s group benefit plan option, referred to in this context as voluntary dependent life insurance or voluntary group life insurance.

How does dependent life insurance coverage work?

Typically, dependent life insurance policies limit coverage to the funeral and burial expenses of the insured. The median cost of a funeral with a viewing and burial is $8,300, according to the latest data from the National Funeral Directors Association. Policy limits are usually within this range. Most group dependent life policies offer limits in thousand dollar increments, such as $4,000, $6,000, $8,000 and so on. There are often limits on how specific dependents are covered. For example, dependent coverage for children is usually offered only until a child reaches a set age.

There are also valuable options for the conversion of some dependent life insurance policies. While child life insurance is not usually convertible, a policy naming the insured’s spouse as the dependent may be converted under certain circumstances, such as when the insured retires, quits, is terminated from their job or divorces the spouse. Converting a dependent life insurance policy to an individual policy would allow the spouse to keep life insurance coverage without being required to establish insurability through a medical exam.

Life insurance dependent qualifications

All group life insurance plans have specific rules for determining if a dependent you would like to insure qualifies. These differ to some extent from plan to plan, although the basic qualifications are generally similar.

Dependents who are children

Typically, the definition for qualified children is broad and covers biological children and stepchildren, as well as children legally adopted or for whom you are a guardian. Usually, children can only be insured until they reach a certain age, which is often 26. These eligibility specifications are similar to those for including a child on your medical insurance. In some cases, a full-time student, child with disabilities or other child uniquely dependent upon you may be covered for longer periods provided you can document the special circumstances.

Dependents who are spouses

For dependent life insurance purposes, spouses are usually defined in broad terms and typically includes any person state law treats as a spouse, including a common-law spouse (provided it is recognized in your state). However, a domestic partner may not be recognized as a qualifying spouse depending on the language of the specific group plan.

Dependents of military members

Family Servicemembers’ Group Life Insurance (FSGLI) is a life insurance program specifically designed for spouses and dependent children of members of the military who are also insured under Servicemembers’ Group Life Insurance (SGLI).

So long as a military member has a full-time SGLI policy, dependent life insurance should be available to their spouse and children who are younger than 18, full-time students or permanently and totally disabled. In order to qualify, you must already have full-time SGLI coverage. The maximum coverage limit per child is $10,000 whereas the maximum coverage for a spouse is significantly higher at up to $100,000.

Pros and cons of dependent life insurance

While there may be several upsides to insuring dependents’ lives, it’s important to weigh the potential drawbacks as well. The table below lists some of the top considerations.

Are dependent life insurance death benefits taxable?

Benefits are taxable in certain circumstances. Dependent life insurance is not taxable if you pay all of the premiums or if your employer pays part of the cost of a policy worth $2,000 or less.

However, if your employer pays for a greater amount of coverage than $2,000 for a dependent, the full amount of the cost of the policy is often taxable. In such cases, the Internal Revenue Service (IRS) typically treats amounts over the $2,000 cutoff as taxable income. The taxable portion of your insurance policy coverage is referred to as imputed income.

The Internal Revenue Service (IRS) has tables that calculate the amount of taxes due based upon certain factors like the age of the insured dependent. It is wise to consult a tax professional when considering your options.

Frequently asked questions

• Is dependent life insurance worth it?
  

  It can be in some circumstances. You may be able to use a dependent life insurance policy to pay for funeral costs after the death of a spouse or child, for example. It could be used to pay off outstanding debts or replace lost income in the event of a spouse or partner’s death. Since dependent life insurance is often part of a benefits package offered by employers, premiums may be low. Keep in mind, however, that the death benefit of dependent life insurance is often low, and it can be a good idea to supplement it with other coverage, such as a term life insurance policy or some type of permanent coverage, such as whole life insurance.

• What is a life insurance child rider?
  

  Life insurance riders are optional add-ons that you can add to your policy that expand or change its coverage. They allow you to tailor a policy to better suit your circumstances. A life insurance child rider is an add-on that pays out a benefit if a dependent child passes away before a certain age, often 25, or when the policy expires if it is term insurance. At this point, in some cases, the policy can be converted into some type of permanent insurance.

• What is the difference between basic life insurance and dependent life insurance?
  

  Basic life insurance is a policy that generally covers the policyholder, while dependent life insurance covers someone other than the policyholder — usually a spouse, child or other family member who is a dependent. With basic life insurance, if the policyholder dies, the death benefit is paid out to their beneficiaries. With dependent life insurance, however, the death benefit is paid to the policyholder themselves. Basic life insurance also generally refers to a policy that is owned independently by someone, rather than coverage that is included as part of a benefits package from an employer.