Life Insurance—Employer-Provided
How Much Employer-Provided Life Insurance Is Taxable to Employees?
Employer-provided life insurance is group coverage many employers offer at no cost to employees, often up to a base amount like one times annual salary, with the option to purchase additional supplemental coverage.
Group life insurance is typically tiered: a base amount the employer pays for entirely, plus optional supplemental coverage the employee can purchase through payroll deduction, often without the medical underwriting required for individual policies. Guaranteed issue amounts are usually capped.
Once employer-paid coverage exceeds $50,000, the IRS treats the cost above that threshold as imputed income, added to taxable wages even though no cash changes hands.
Employer-Provided Life Insurance Key Facts and Imputed Income Rules:
- Base coverage is typically employer-paid, often set at one times salary or a flat amount like $50,000.
- Supplemental coverage is usually available via payroll deduction, often with limited underwriting.
- Employer-paid coverage above $50,000 is treated as imputed income for tax purposes.
- Requires close coordination between benefits carrier and payroll to keep imputed income calculations accurate.
Frequently Asked Questions
Is employer-provided life insurance taxable to the employee?
The cost of coverage above $50,000 is treated as imputed income.
Can employees buy additional coverage beyond the base amount?
Yes—often through payroll deduction with limited underwriting.
What is "guaranteed issue" coverage?
Coverage available without health questions, up to a set amount.
Does an employee’s beneficiary designation carry over between employers?
No—employer-provided life insurance is tied to that employer’s plan, so employees must complete a new beneficiary designation each time they start a new job.
What happens to employer-provided life insurance if an employee is terminated?
Coverage typically ends on the termination date, though some plans allow the employee to convert to an individual policy within a limited window.
Related terms: Imputed Income, Benefits Administration, Section 125 Cafeteria Plan