What Is Employer Paid Term Life Insurance?
Employer paid term life insurance simply means a group term life plan offered to employees through their business for which the business itself pays all or part of the premium. The underlying policy does not change regardless of who pays for it. There are potential tax consequences for employer-paid policies versus employee-paid ones.
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Group Term Life
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Benefits packages at businesses often include group life insurance options which allow the employees to purchase a certain level of death protection at competitive rates, typically without a medical exam. Sometimes the employer will pay the premiums in part or in whole on behalf of the employees.
Taxation
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All premiums must be paid with after-tax dollars, whether funded by the business or the employee. According to IRS rules, there is no tax consequence on death benefits of $50,000 or less regardless of who pays premiums. Benefits exceeding that amount may be subject to taxation if the employer pays all or part of the premiums. If the employee pays 100 percent of the premiums, no taxation occurs on any benefit regardless of size.
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Benefits of Group Term Life
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For many, group term life is more affordable than individual term life insurance. Typically, there is no medical exam, though exams or questionnaires may be required for larger benefit amounts. The policy renews every year according to the company's annual enrollment guidelines.
Drawbacks of Group Term Life
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The primary drawback for this type of insurance is that it cannot follow an employee upon quitting or retiring from the business. For those who reach retirement age, the insurance will disappear during the years they need it most. If a retiree has developed a chronic illness, he may not be able to purchase individual insurance at all after leaving the company.
Cash Value
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Term life insurance does not accrue cash value at all. Group term is no different. In order for cash value to accrue, whole life or universal life contracts must be purchased. Typically, these are not offered in a group benefit setting.
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References
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