Group Life and Disability Insurance

Question 1

Group Term Life Insurance

Answer 1

Part of compensation to employee
First 50k tax free

• Must provide death benefit excludable from gross income
  -group of employees as compensation for services
  -provided by policy directly or indirectly
  -computed under a formula and can’t exclude unless non employee
  (services for commission only can be excluded)

Question 2

Group Whole Life

Answer 2

Taxed to employee W2 income on premiums paid

Premiums are deductible by employer if nonforfeitable

Question 3

Dependent Coverage

Answer 3

Not included in the 50k exemption

Tax free if doesn’t exceed $2000

Question 4

Taxes Group Term

Answer 4

Employee -tax free up to 50K
- over 50K taxed on cost (based on table-50K)
- must pay FICA/FUTA on amount over 50K
-amount over 50k and included in income
reported on W2
-premium is deductible

Question 5

Discriminatory Term Plans

Answer 5

If discriminatory toward key employees - key employee must include:
Greater of actual cost of insurance or cost determined from table (annual amount)
Key employees lose 50k exclusion

Question 6

Assignment of Group Term

Answer 6

Employee assigns policy, giving up all incidents of ownership, including naming benes, terminating and right to convert….after 3 years excluded from estate.

Question 7

Carve Out Plans

Answer 7

Highly compensated employees are “carved-out”
Individual policies are provided for them
Cheaper
Usually Split Dollar, IRC Section 162 Bonus, or Death Benefit Only

Question 8

IRC Section 162 Bonus

Answer 8

Employee purchases and owns life ins
Employer pays premium-deductible/taxable to employee
Employee pays income tax on premium with no cash so second bonus is issued to cover tax.

Question 9

Group Disability Plans

Answer 9

Employer pays premium in most cases
Taxable to employee
Short Term and Long Term Policies
Short term start 1-8th day of illness - 13,26,52 weeks
Long term 30days, 2years-age 65

paid monthly
LTD capped

Question 10

Planning- increase coverage disability

Answer 10

obtain individual policy first then group disability. Individual can’t be reduced if group obtained later

Question 11

SSI Disbility Definition

Answer 11

Can’t engage in any substantial employment
Subject to waiting period - beginning 6th full calendar mo (5 mo waiting)
Expected to be disabled for at least 12 mo