What is the Living Benefit in a Group Plan?

Aug 11, 2014

Although it is not well known, there is a clause within most group insurance policies that allows a plan member of a group insurance plan to collect, for compassionate reasons, a portion of their life insurance benefit while they are still alive. The funds can be used for any reason chosen by the plan member. The living benefit is sometimes referred to as an “accelerated benefit”.

There are slight variations between insurance companies in regards to the advanced amount to be paid out, but generally it is 50% of the life insurance benefit shown in the benefits schedule up to a maximum of $50,000 or $100,000.

However, there are a few conditions that must be met in order for the advanced payment to be made.

  1. The plan member must be terminally ill.
  2. Their life expectancy is less than 12 or 24 months (depending on the insurance carrier). Life expectancy must be verified through an attending physician’s statement.
  3. In some cases, if the living benefit clause doesn’t form part of the contract but is done on an administrative basis, the plan sponsor must consent to the advance payment.
  4. Some insurance carriers will only issue the payment of the living benefit if the plan member is an on disability and is an approved waiver of premium claimant.

Upon the death of the plan member, the value of the living benefit will be deducted from the amount that would otherwise have been payable under the life insurance benefit. This would be the amount payable to the beneficiary. Note that the living benefit is not taxable because it is considered by Canada Customs and Revenue Agency to be part of the death benefit.

For those impacted by such a somber prognosis, it is helpful to know that there can be funds made available through the group benefits plan to assist them with the many expenses that can arise during this time.

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