240 / What are the tax benefits of employer provided group term life insurance?

An employer may provide employees with up to $50,000 of group term life insurance protection each year without cost to employees. The taxable value of group term insurance in excess of the exclusion amount generally is determined under a table (Table I) provided by the IRS ( Q 246). The exclusion generally is not available unless the insurance provided under the plan satisfies the definition of group term life insurance ( Q 241, Q 244). If insurance provided does not meet the definition of group term life insurance, an employer’s premium cost is includable in employee income.

If a plan provides group term life insurance that is discriminatory, the exclusion is not available to key employees ( Q 249). The taxable cost to a key employee of the entire amount of insurance under a discriminatory plan is the higher of the actual cost or the cost under Table I.

A premium paid by an employer is deductible. Group term life insurance may be provided under term policies or under policies providing a permanent benefit ( Q 254). An employer also may provide permanent life insurance to employees on a group basis ( Q 257, Q 258).