Basic Dependent Life Insurance in Canada: What You Need to Know

When purchasing life insurance, it’s crucial to consider not just your own needs but those of your loved ones as well. That’s where basic dependent life insurance in Canada comes in. This supplemental coverage provides a basic amount of life insurance for your dependents, offering financial protection in case of their unexpected passing.

In our complete guide, we’ll explore what basic dependent life insurance entails, who is eligible, its benefits, and what to consider when deciding on coverage.

What is Basic Dependent Life Insurance?

Basic dependent life insurance refers to a modest amount of life insurance an employer provides for employees’ dependents, usually at no cost. It is an optional supplemental benefit to the employee basic life insurance coverage employees receive.

Unlike individually purchased life insurance, dependent coverage obtained through an employer comes with guaranteed issuance. This means dependents don’t have to answer health questions or undergo medical exams to qualify. It provides a baseline amount of protection.

Basic dependent policies typically offer:

• $5,000 to $25,000 in spouse coverage
• $2,000 to $10,000 in child coverage

Coverage amounts up to $50,000 for a spouse and $15,000 per child may be available, depending on the employer plan. But most basic dependent policies fall on the lower end of coverage amounts.

Basic dependent life insurance is group term life insurance, meaning it covers the insured individual for a set period of time rather than for life.

This period is usually aligned with the employee’s active employment. Once employment ends, coverage will terminate unless converted to an individual policy.

How Does Basic Dependent Life Insurance Work?

With basic dependent term life insurance, the employee pays no premiums, and coverage is automatically granted once eligibility requirements are met.

During open enrollment or after a qualifying event like marriage or birth of a child, employees can elect basic dependent coverage.

The insured amount remains level until the coverage ends, typically if the employee leaves their job. The financial protection continues whether the dependent passes from natural causes or an accident.

Their death benefit gets paid out as a tax-free lump sum to assist with final expenses and daily living costs.

What Does Basic Dependent Life Insurance Cover?

Basic dependent life insurance covers employee-elected dependents including:

• Spouse: Legal spouse or domestic/civil union partner. Coverage often reduces at age 70.
• Children: Natural, adopted, foster, stepchildren, and legal wards up to age 26 (or stipulated by plan). Disabled adult children may also qualify.
• Newborn Child Provision: Many plans automatically cover newborns for the first 31 days after birth. Employees must actively enroll the child within 31 days for coverage to continue.
• Stillborn Child Provision: If offered, this provides a lump-sum benefit if an employee’s unborn child dies after a specified pregnancy duration, often 20 weeks. The amount is typically $1,000.

Basic dependent life insurance only pays death benefits should a covered loved one pass away. It does not have any cash value buildup or living benefits like some permanent life insurance policies. Key exclusions may include suicide, acts of war, or death during active combat duty.

Who Is Eligible for Basic Dependent Life Insurance?

Employers establish eligibility requirements for dependents under basic coverage. Standard criteria include:

• Legal spouse or domestic partner of employee
• Children up to age 26
• Disabled children if approved as Federal tax dependents
• Newborns automatically covered first 31 days

Spouses may be ineligible if they are also enrolled in employee coverage under the same group plan. Documentation proving dependency, such as a marriage or birth certificate, is typically required during enrollment.

Benefits of Having Basic Dependent Life Insurance

Basic dependent life insurance delivers valuable advantages to employees and their loved ones:

• Guaranteed issue amounts require no health questions
• Added financial safety net for dependents
• Valuable coverage with no direct premium costs
• Easy enrollment process during open periods
• Option to supplement with additional purchased amounts
• Seamless coverage from newborn to adulthood
• Continued coverage for disabled dependent children
• Conversion option to port coverage (with limitations)
• Painless payroll deduction of premiums (if employee contributes)
• Peace of mind knowing dependents have a basic level of protection

Pros and Cons of Basic Dependent Life Insurance

Like all insurance products, basic dependent life insurance comes with both advantages and potential drawbacks:

Pros:

• Low cost: Premiums are fully or partly covered by employer
• Easy to obtain: Guaranteed issue for set amounts
• Added protection: Safety net in case of dependent’s death
• Tax benefits: Employer-paid premiums aren’t taxable income

Cons:

• Limited amounts: Typically only $5,000 – $25,000 per dependent
• Conversion limitations: Options to port coverage may be restricted
• Reductions: Benefits often decrease at certain ages
• Coverage gaps: New dependents may have periods without coverage
• Administration upon loss: Process to file claim could be difficult during grieving period

The modest coverage amounts make basic dependent life insurance more of a supplemental policy. For higher amounts of protection, employees may need to add supplemental or individual dependent coverage.

Are Basic Dependent Life Insurance Death Benefits Taxable?

The taxability of basic dependent life insurance benefits depends on who pays the premiums and the amount of coverage:

• If the employer pays premiums, the first $2,000 in benefits per dependent is income-tax free.
• If over $2,000 in coverage, the death benefit remains tax-free but the premium counts as taxable income to the employee.
• For employee-paid coverage, both premiums and death benefits are tax-free.

How Much Basic Dependent Life Insurance Do You Need?

Since basic dependent life insurance is a guaranteed-issue supplemental coverage, the amounts already established by your employer must be considered as part of your full insurance portfolio.

Evaluate whether the basic amounts fit into your family’s financial situation appropriately or if supplemental coverage should be purchased.

Please see below for key factors to determine if basic dependent coverage is sufficient for your needs:

• Current income replacement needs if a loved one passes
• Health and ages of dependents
• Existing life insurance carried, both individual and through employer(s)
• Financial obligations like mortgage, loans, education expenses
• Standard of living and income relied upon from deceased
• Special needs support required for surviving dependents
• Final expenses and burial costs to cover

Consulting with a financial advisor can provide an impartial view of gaps in dependent coverage and how much total insurance is ideal to meet financial goals now and in the future.

How to Get Basic Dependent Life Insurance

Basic dependent life insurance is straightforward to obtain, simply requiring enrollment during open periods or after qualifying events.

1. Understand If Offered: Check if your employer provides dependent life as part of benefits plan.
2. Review Options: See amount of basic coverage offered per dependent and eligibility terms.
3. Decide on Adding: Determine which dependents to cover during open enrollment.
4. Submit Enrollment: Elect coverage and provide dependent documentation as needed.
5. Pay Premiums: None required for basic amounts, or premium deductions start after next payroll cycle.
6. Confirm Coverage: Verify correct dependents display as covered during next policy review.

The Bottom Line

Basic dependent life insurance delivers valuable baseline protection for the loved ones employees want to protect.

While coverage amounts are modest, they come at an affordable price and with streamlined enrollment. For minimal effort, workers can gain crucial peace of mind knowing their family has a basic financial safety net.

Discuss with your employer if basic dependent life insurance is part of your offered benefits. Understand how it fits into your full portfolio of life insurance protection for dependents. Then supplement accordingly with paid coverage based on their needs and your budget.

Frequently Asked Questions about Basic Dependent Life Insurance