Overview

Many employers provide group term life insurance for their employees. When group life insurance coverage is provided, each employee receives a specified amount of term life and accidental death and dismemberment (AD&D) insurance. Benefits typically range from $50,000 flat, 1x earnings, or 2x earnings. There is usually a maximum benefit for salary-based formulas. Most often, base benefits are provided to all employees without the need for a medical examination or health history disclosure.

Age Reductions

Most policies have a provision such that benefits reduce at age 65 and further reduce at ages 70 and 75. Check your certificate for specific benefit reduction.

Beneficiaries

You name a personal beneficiary of your choosing for your life insurance. However, it is not recommended to list a minor as your beneficiary. You may change your beneficiaries at any time.

Taxation of Benefits

The proceeds of a group term life insurance policy—when paid to your beneficiary—are generally income tax free. Proceeds are subject to estate taxes (which apply to certain large estates).

Taxation of Premiums

The value of up to $50,000 of employer paid group term life insurance is tax exempt. However, the value of any coverage in excess of $50,000 is taxable to the employee per the IRS guidelines. This is called Table I Taxation. The following schedule is used to calculate the taxable benefit of the group term life insurance in excess of $50,000.

Age Bracket	Cost per $1,000 per Month
Under 25	$0.05
25-29	$0.06
30-34	$0.08
35-39	$0.09
40-44	$0.10
45-49	$0.15
50-54	$0.23
55-59	$0.43
60-64	$0.66
65-69	$1.27
70+	$2.06

Premium Taxation Example

Sue Smith is 33 years old with an annual income of $75,000. Her life insurance benefit is $75,000. Following is an overview of the calculation of the taxation of her life insurance benefit: 

Total Life Insurance Benefit	$75,000
Tax-free Life Insurance Benefit	$50,000
Taxable Life Insurance Benefit	$25,000
Table I Rate for 33 Year Old	$0.08 per $1,000 per month
Taxable Benefit (in $1,000)	25
Value of Taxable Life Benefit	$2.00 per month
Value of Benefit (All 12 Months)	$24.00

If Sue worked the entire 12 months, the value of her excess life insurance benefit (the amount in excess of $50,000) would be $24.00. That does NOT mean that she will pay tax of $24. Rather, it means that $24.00 would be added to her income and she would be responsible for paying regular income taxes on the $24 of additional income (as if it were additional compensation). 

Note that if Sue didn’t work for all 12 months of the year, the value of her life insurance benefit would be prorated based on the number of months she actually worked. In that case, her taxable benefit would be $2.00 x the number of months she worked.