Group-term life insurance

Definition

Group-term life insurance is a type of life insurance policy that provides coverage for a group of people, typically employees of a company, under a single contract. This form of insurance is often offered as an employee benefit, providing financial protection to the beneficiaries in the event of the insured's death. It usually offers coverage for a limited term and can be renewed, and the employer typically pays for all or part of the premiums.

5 Must Know Facts For Your Next Test

1. Group-term life insurance premiums are generally paid by the employer, making it an attractive benefit for employees.
2. The amount of coverage provided can vary based on factors like employee salary or tenure within the company.
3. Typically, group-term life insurance benefits are not considered taxable income to employees up to $50,000 of coverage; any amount above that is taxed as income.
4. This type of insurance is often automatically provided to employees as part of their employment package and does not usually require medical exams for enrollment.
5. If an employee leaves the company, they may have options to convert their group-term policy into an individual policy, although this could result in higher premiums.

Review Questions

• How does group-term life insurance function as a fringe benefit for employees?
  • Group-term life insurance functions as a fringe benefit by providing employees with life insurance coverage at little or no cost. Employers typically pay for the premiums, which enhances the overall compensation package and can help attract and retain talent. This type of benefit offers peace of mind to employees, knowing their beneficiaries will receive financial support in case of their death without incurring significant personal costs.
• What are the tax implications associated with group-term life insurance benefits, particularly regarding amounts over $50,000?
  • The tax implications of group-term life insurance benefits include that premiums paid for coverage up to $50,000 are generally not considered taxable income for employees. However, if coverage exceeds this threshold, the cost of that excess coverage becomes taxable income. This means that employers must report the cost of this additional coverage on employees' W-2 forms, and employees may face increased tax liabilities due to this added benefit.
• Evaluate the importance of group-term life insurance in employee compensation packages and its impact on workforce morale.
  • Group-term life insurance is a significant component of employee compensation packages as it provides essential financial security for employees' families in case of unforeseen events. Offering this benefit can enhance workforce morale by demonstrating that employers care about their employees' well-being beyond just salary. Furthermore, it fosters loyalty and can lead to higher job satisfaction, ultimately benefiting both employees and employers through reduced turnover and increased productivity.

Related terms

Fringe Benefits: Non-wage compensations provided to employees in addition to their normal wages or salaries, which may include health insurance, retirement plans, and more.

Taxable Income: The portion of an individual's income that is subject to taxation, which can include wages, dividends, capital gains, and certain fringe benefits.

Beneficiary: A person or entity designated to receive the proceeds from a life insurance policy upon the insured's death.