In their continuing effort to assemble the most enticing employee benefits package possible, some employers are showing renewed interest in an old favorite: group term life insurance. Although such life insurance coverage had fallen off the radar screens of some employers, it remains an affordable benefit that can pay off for employer and employees alike.
For you, the employer, the upside is considerable. Premiums you pay for group term life insurance are generally tax-deductible and, because claims occur so infrequently, the coverage is typically simple and inexpensive to administer compared with other fringe benefits. When covered employees do pass away, the paperwork is fairly straightforward.
But perhaps the most important reason to consider offering life insurance as a fringe benefit is that employees want it. In fact, almost half of those who responded to MetLife’s 15th Annual U.S. Employee Benefit Trends Study, published in 2017, called life insurance a ‘must-have’ benefit.
With the mounting concern among workers about financial wellness, life insurance is especially appealing to those with children or other dependents. Having it can reduce stress, strengthen organizational loyalty, and increase productivity.
For employees, group term life insurance usually is not a taxable benefit. More specifically, the cost of the first $50,000 of coverage you provide generally is tax-exempt for the covered employee if you meet certain conditions. But you must include in the employee’s income the cost of coverage exceeding $50,000, less any amounts the employee paid toward the coverage. The amount included in income is also subject to payroll taxes (Medicare and Social Security, or Federal Insurance Contributions Act).
What if you provide coverage for an employee’s spouse or dependent? The cost of such group term life insurance coverage is tax-exempt to the employee if the coverage does not exceed $2,000. If it does, the entire cost of coverage generally is taxable.
Note: The cost of coverage for tax purposes is calculated according to an IRS table, not the actual premiums paid.
Once you decide to offer life insurance, you will have to determine which employees will be eligible. The more insured employees, the lower the rates you will pay.
Bear in mind that, if you offer the benefit only to key employees or in a way that favors key employees, it probably will be taxable to them because you will have trouble satisfying the IRS non-discrimination requirements. The cost also would be subject to payroll taxes, and you will risk alienating the rank and file.
A valuable tool
All in all, group term life insurance is a worthwhile benefit to consider adding to the mix. Structured properly and combined with other desirable benefits, it can prove a valuable tool to boost recruitment and retention. We can provide you with more information on the tax impact and advantages of life insurance, as well as other fringe benefits to consider.