Group Life Insurance Requirements

Group life insurance is often available as an employer benefit.

Life insurance is designed to replace your income, pay off your debts and finance your funeral expenses if you die within the policy period. Unexpected death can cause a severe financial strain on the surviving family, and life insurance can help minimize or eliminate this burden. Individual life insurance policies, such as whole life or term life, are available through licensed insurance agents and brokers. Employers often provide group life insurance policies as an alternative for their employees.

Nondiscrimination

In order for a group life insurance plan to be legal under U.S. Code Title 26, Subtitle A, Chapter 1, Subchapter B, Part II, § 79, the plan must meet certain nondiscrimination criteria. To qualify, the plan must include 70 percent of eligible employees, 85 percent of whom cannot be considered "key employees." The law permits part-time and seasonal employees, and those with less than three years of service, to be excluded from consideration for these plans.

Medical Exams

Typically, group life insurance is available without a medical exam. If you are considered uninsurable for individual life insurance policies due to the medical underwriting, you may still be eligible for a group plan. Some companies state a maximum benefit available without proving insurability.

Employer Carried Status

If your employer pays a portion of the premiums for your group life insurance plan, it is considered indirectly carried by the employer under IRS tax law. If the employer pays 100 percent of the premiums, it is considered directly carried by the employer. This status is used to identify tax implications for the policies.

Taxation

Premiums paid for group life insurance plans with benefit amounts of no more than $50,000 are free from taxation whether they are employer carried plans or not. For plans with benefits exceeding $50,000, the amount of premium dollars paid by the employer must be considered as income to the employee and are subject to Social Security and Medicare taxes, according to IRC section 79 of tax law.

References

• Internal Revenue Service: Group-Term Life Insurance
• Fed Prime Rate: Employer-Provided Life Insurance
• Cornell University Law School: U.S. Code