Common Employer Provided Insurance

Group-Term Life Insurance

Most employers provide some form of life and disability insurance to cover their employees. Benefits are relatively inexpensive to obtain at group rates available to the employer and are usually based on the employee's salary.

Group life insurance is generally tax-free to the employee to up to specified amounts; special Internal Revenue Service tables apply if the amount is greater. Typically, the employer provides a benefit of one or two times annual salary and pays the full cost of insurance premiums. The Form Group Life Insurance/Accidental Death and Dismemberment Insurance Coverage Request is an application for group life/accidental death and dismemberment insurance that also provides for employees to purchase life insurance coverage for dependents through payroll deductions. The accidental death benefit is an additional payment that the employee's beneficiary will receive if the employee dies accidentally; this type of provision is common in insurance policies and is also referred to as double indemnity or AD&D.

If the employee elects to waive insurance coverage, the employee should be asked to sign a waiver (see Form Waiver of Group Life Insurance and Dependent's Group Life Insurance). Such a waiver precludes the employee's dependents from later arguing that the employer failed to provide promised life insurance.

Although there are no federal regulations requiring employers to offer continuation life insurance coverage to terminated employees, employers or their insurers may choose to offer the continued coverage.

Life insurance that is not part of a qualified group-term life insurance plan can be useful where the employer wants to provide life insurance for a small group of key employees, but not for rank and file employees. The cost can be considerably lower than a group-term life insurance plan because there are no anti-discrimination requirements. Even if the key employees' compensation is grossed up to offset the extra tax due on the compensation used to purchase the insurance policy, the overall cost to the employer may be less than the cost of providing insurance to all employees.