What Is Group Term Life Insurance?

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What Is Group Term Life Insurance?

Term insurance is a type of life insurance that pays a benefit only when you die or under certain conditions specified by the policy. In contrast, whole life insurance builds a cash value based on the premiums you pay and the performance of the investments that are part of the insurance, so should you cancel the policy, you will get the cash value back. Term life insurance has no cash value, so if you cancel the policy, you receive nothing back for the premiums you or your employer paid. Employers purchase group term life insurance for an entire group of employees, so the employer gets a discounted rate for insuring an entire group. The purpose of group life insurance is as an employee benefit for employees; although to be covered, employees may have to meet certain conditions such as work a certain number of hours a week or be employed for a certain period of time.

Paying for it

Employers may pay the entire premium for group life insurance or may pay part of it and pass on the remainder to their covered employees. According to IRS rules, the first $50,000 of group life insurance is a tax-free benefit to employees and after that breakpoint, employees must pay a minimal amount of tax on the benefit, which depends on how much coverage is provided under the policy’s terms and the age of the taxpayer. The more insurance provided and the older the taxpayer, the higher the tax liability. However, the IRS tax rates for such insurance are fairly low. For example, a 52-year-old employee who received $75,000 of life insurance coverage would owe $69 in tax for the year on the benefit. The tax is paid on $25,000 of the $75,000 policy, as the first $50,000 in coverage is tax-free to the employee.