The Hartford Basic Life Insurance
Effective July 1, 2005, we will be adding an additional Basic Life benefit for all active full-time employees. The Basic Life coverage is purchased through The Hartford Life Insurance Company and is paid in full by Union College. The current coverage is as follows:
- $50,000 - Employee
- $50,000 - Spouse
- $5,000/$750 - Dependent Child/Stillborn
The increased coverage, effective
- $100,000 - Employee
- $50,000 - Spouse
- $10,000/$750 - Dependent Child/Stillborn
This is an excellent benefit that we are happy to provide. There are, however, tax implications for an employer-paid benefit of this type.
According to IRS rules (IRC section 79), the first $50,000 of an employer-provided life insurance benefit is non-taxable. But, any amount over $50,000 for an employee, over $2,000 for a spouse, or over $2,000 for a child is considered taxable income, also called "imputed income." If coverage exceeds $2,000 for a spouse or child, then the entire amount, either $50,000 or $10,000, is considered imputed income.
The taxable benefit is calculated by taking the amount of imputed income ($50,000 or $10,000) and multiplying that figure with an IRS rate chart, which assigns a rate per $1,000 of coverage based upon your age. This rate increases in 5 year age bands because the IRS assumes that insurance coverage is more expensive the older we are. View the rate chart (PDF).
This imputed income does not increase your take-home pay, but is added to your total income to be taxed. The actual amount of taxes paid varies according to your individual tax bracket.
Example 1: If you are age 30-34 and have employee-only basic Life Insurance, your annual increased taxable income is $48.00. If you are in the 28 percent tax bracket, you will pay .52 cents per pay period (26 pays) in taxes for an additional $50,000 of life insurance.
Example 2: If you are age 65-69 with employee-only coverage, your annual additional taxable income is $762.00 or $8.20 in taxes per pay period for an additional $50,000 of life insurance.
Because of these tax consequences, the increased benefit is not mandatory. You may elect to waive the increased life insurance by completing the Waiver and Release form (PDF). Because this is the only employer-paid death benefit offered to our employees, it is very important that you consider this carefully before waiving the benefit. If you decline the increased coverage, you are not allowed to opt back into the higher coverage at a later date. If you experience a "qualifying event" such as marriage, birth of a child or divorce, or change of employer, you will have an opportunity at that time to opt back into the higher amount.
You can waive these increased benefits in one of two ways. You may retain the previous benefit structure from 2005 ($50,000 employee, $50,000 spouse, $5,000 child) and only pay taxes on the imputed income for your spouse and child. Because your amount stayed below $50,000 there is no imputed income for you. Secondly, you can waive all benefits that result in imputed income, thus lowering the benefits to $50,000 employee and $2,000 for your spouse and child.
To waive the additional coverage you must return the "Waiver and Release" form with both your signature and your spouse's signature (if married). This must be notarized.
When both spouses are denominationally employed, each will be classed as a single employee. An employee cannot be covered as both an employee and spouse. The spouse that is taxed for the dependent children is the spouse whose birthday comes first in the year.
An eligible dependant is as follows:
- Your spouse
- Your unmarried child:
- from live birth through age 19 years; or
- who is 19, but has not yet attained age 24, is primarily dependent upon you for financial support and attends an accredited school (other than a correspondence school) on a regular basis as his principal activity; or
- who is 19 years or older, and is disabled and primarily dependent upon you for his financial support.
Portability and Conversion of your Life Insurance:
The Basic Life Insurance benefit, as well as the Supplemental Life Insurance allows porting and/or conversion of coverage when eligibility is lost. Covered employees have 31 days from the date coverage ends to submit written application to Hartford Life. Employees and/or dependents lose eligibility upon:
- Termination of employment
- Death of an employee, causing surviving spouse or dependents to lose coverage
- Divorce of a covered spouse from the employee
- A dependent child reaching the age limit
Portability or porting coverage allows an employee to continue their coverage at a group rate without having to provide proof of good health. The rates, terms and conditions under the ported policy may be similar but not identical to those under the NAD group plan. Porting is the most cost effective option.
Employees who have reached retirement age are not eligible to port their Basic Life coverage. Conversion (see below) is the only option. However, retirees are eligible to continue any Supplemental Life coverage for themselves and their dependents at the SAME group rate by completing an enrollment form within 31 days of their last day at work.
Conversion allows an employee to convert all or a portion of their coverage to an individual policy from Hartford Life without having to provide proof of good health. The rates, terms and conditions of the converted policy are NOT the same as those under the NAD plan. Converting to an individual policy is the more costly option.
- If an employee elects to continue all coverage under the portability provision, then the conversion provision is NOT available.
- If an employee is insured in excess of the maximum portable amount($250,000), then the conversion provision will be available for the portion in excess.
Please contact Jonathan at joshield if you have questions.