Module 5 Flashcards
Employee Group Benefits
The purpose of group life insurance is to ?
temporarily fill the earnings gap that would result from a worker’s death, thus protecting the financial well-being of the worker’s survivors.
A group life policy can be established as a ? or a ?.
contributory plan; noncontributory plan
What is a contributory plan?
employee pays some portion of premiums.
What is a noncontributory plan?
employer pays entire premium cost.
Group life insurance coverage usually is based on a percentage (or multiple) of ?.
compensation
What is group term life insurance?
a type of life insurance coverage provided by an employer or organization to its employees or members. these policies typically provide a lump-sum payment of the face amount of the insurance to beneficiaries at the insured employee’s death. Generally, the employee may name any party as beneficiary. (State law may prohibit naming the employer as beneficiary.) Although a lump sum is the common form of payment, the employee may have the right to elect an installment payout if specified in the master policy.
What are 3 common formulas that apply uniformly to all plan participants in a group term life insurance policy?
A percentage or multiple of earnings
An amount of coverage based on years of service
A coverage limit for different classes of employees
A group term life insurance policy typically includes ? benefits, such as the right to convert to permanent coverage after the group coverage terminates, an additional feature (or features) that provides no economic benefit other than current insurance protection, and term life coverage with level premiums for up to five years.
ancillary
What is Section 79 of the Internal Revenue Code?
governs the taxation of group term life insurance provided by an employer. It allows employees to receive up to $50,000 of employer-paid group term life insurance coverage tax-free. However, if coverage exceeds this amount, the excess is considered imputed income and is subject to taxation based on IRS Table I rates.
Life insurance does not qualify as group term life insurance if provided to fewer than ? employees.
10
What are the 4 requirements for the Section 79 tax benefit?
- The coverage must provide a general benefit.
- The coverage must be provided to a group of employees as part of their compensation for services rendered as an employee.
- The insurance policy must be provided by the employer as either a master policy or a group of individual policies.
- The amount of insurance provided to each employee must be consistent with no individual selection.
For the plan to qualify for favorable tax treatment (i.e., the employee’s $50,000 exclusion and employer’s deduction), Internal Revenue Code Section 79 requires that a group term policy furnished by the employer must not ?.
not discriminate in favor of key employees.
Two types of AD&D coverage are available:
business travel insurance, which generally covers specified classes of employees only while they are traveling for business purposes, and voluntary accident insurance, which covers accidents at any time and related to any activity, either personal or business.
Group term life insurance coverage typically provides a ? of the face amount of the insurance to beneficiaries at the insured employee’s death.
lump-sum payment
The annually renewable term coverage used in 90% of group term life policies has the advantages for the employer of:
being relatively easy to administer, low in cost, and tax advantaged (premiums are a deductible business expense).
Among the advantages of group term life for the employee (including the owner/employee) are:
the absence of a medical exam requirement and the tax-free nature of the first $50,000 of coverage.
Group term life coverage must be based on a formula that applies uniformly to all plan participants. Some common formulas include the following:
A percentage or multiple of earnings
An amount of coverage based on years of service
A coverage limit for different classes of employees
Group term life coverage for dependents is usually LESSER/HIGHER amount than the limits established for employees.
lesser.
Technically, to qualify as group term life under Section 79 and receive the favorable tax treatment allowed for such coverage, the life insurance provided must meet the following 4 requirements:
- The coverage must provide a general benefit.
- The coverage must be provided to a group of employees as part of their compensation for services rendered as an employee.
- The insurance policy must be provided by the employer as either a master policy or a group of individual policies.
- The amount of insurance provided to each employee must be consistent with no individual selection.
For the plan to qualify for favorable tax treatment (i.e., the employee’s $50,000 exclusion and employer’s deduction), Internal Revenue Code Section 79 requires that a group term policy furnished by the employer must:
not discriminate in favor of key employees.
An accidental death and dismemberment (AD&D) policy provides a ? due to an accident.
lump-sum benefit for loss of life or body parts
There are two types of AD&D coverage are available:
business travel insurance, which generally covers specified classes of employees only while they are traveling for business purposes, and voluntary accident insurance, which covers accidents at any time and related to any activity, either personal or business.
While group term life insurance is the most common type of group policy, the employer may choose to offer a plan that permits employees to build some ? insurance coverage.
permanent
Dividends paid on group permanent policies may be taxable to the employee if ?
a policy includes both group term life insurance coverage and permanent benefits.