Group Basic Life and Accidental Death & Dismemberment (AD&D)

Once a benefit design is well thought out and implemented this line of coverage does in most ways become a price driven commodity. It is however worthwhile to consider keeping this line of coverage with the same carrier as your long-term disability coverage. Coordination of Waiver of Premium provisions and determinations by the same carrier provide significant administrative benefit to the employer and the insured.  Further, there is both carrier and market required minimum pricing for this coverage based upon manual assumptions of mortality, even if an employer has had no, or minimal, claims for a number of years. With some disability carriers, when LTD experience goes above expected and current pricing, they may yet offer a level renewal if they have the group life coverage and it is running profitably. 

This coverage is experience rated. In designing any plan, the maximum indemnity per insured should be balanced against the aggregate annual premium to achieve a sustainable and acceptable premium rate. Carriers typically only consider the past three years of experience. In addition, some of the largest life insurers will almost totally disregard case experience vs. their internal manual rates based upon their overall mortality experience for employers of less than 2,000 to 5,000 lives. This may provide some advantages to employers that desire to provide higher amounts of coverage. Again, the right design and carrier selection for any client is a balance of risks and rewards.

Section 79 of the Internal Revenue Code requires that the cost of any life insurance provided to employees exceeding $50,000 be imputed to employees as additional income. The taxation of life insurance coverage in excess of $50,000, makes this line of coverage less efficient than redirecting limited employee benefit dollars to other more favorably treated lines of coverage, such as health insurance. Nonetheless, some of our clients elect to provide employees as much as $250,000 to $750,000 of coverage.

In our opinion, the taxation of employer provided life insurance premiums makes supplemental medically guaranteed life insurance plans more attractive.

IRC Section 79 does not apply to AD&D.  AD&D is very inexpensive coverage, making it cost efficient to provide employees larger amounts of this insurance, perhaps exceeding life insurance benefit amounts. Some carriers will provide AD&D coverage as a standalone product rather than require it to match the benefit amount provided by the life insurance allowing higher limits than the firm provided life insurance.  Further, Accidental Death & Disability is pool rated rather than experience rated, reducing your exposure to rate increases.