How Group Life Insurance Works
| Feature | Group Life Insurance | Individual Life Insurance |
|---|---|---|
| Cost to employee | Usually free (employer-paid) | Monthly premium you pay |
| Underwriting | Guaranteed issue (base amount) | Medical exam required (usually) |
| Coverage amount | 1–2x annual salary typical | Any amount |
| Portability | Ends when you leave employer | You own it — keeps regardless |
Why Group Coverage Is Usually Not Enough
The average employer provides 1x annual salary in basic life insurance. For an employee earning $75,000, that's $75,000 in coverage — while financial experts recommend $750,000–$1,125,000 (10–15x salary) for someone with dependents.
Additionally, group coverage is not portable — when you change jobs, get laid off, or retire, the coverage ends. If your health has changed by then, getting new individual coverage may be more expensive or difficult.
Is Employer Life Insurance Taxable?
The first $50,000 of employer-paid group life insurance is tax-free to employees. Coverage above $50,000 is treated as imputed income — you pay income tax on the IRS-calculated cost of the excess coverage. This "Table I" income appears on your W-2.
Frequently Asked Questions
It usually ends at retirement or significantly reduces. Some employers maintain a reduced paid-up policy for retirees. This is another reason individual coverage you own independently is important to have before retirement.
Most group plans allow conversion to an individual whole life policy without a medical exam. This is valuable if you have health issues — but whole life premiums are substantially higher than term. Compare costs carefully before converting.
Not always — supplemental group life is convenient but not always cost-competitive with individual term policies, especially for younger, healthier employees. Compare the per-thousand cost of supplemental group coverage against individual term quotes before enrolling in large amounts.