Employer life insurance is a group term policy your company buys from an insurer to cover its workforce, and it pays a death benefit to whoever you name as beneficiary if you die while you’re still on the payroll. The basic amount is usually free, typically one or two times your annual salary, and most plans let you buy more coverage through payroll deductions. You almost never have to take a medical exam for the basic benefit. The catch: coverage generally ends when the job does.
What Kind of Policy It Actually Is
Your employer buys one group policy from an insurer, and every eligible employee is covered under the same terms. It’s almost always term life insurance, meaning it lasts only while you’re actively employed and covered. Because it’s a group plan, insurers offer what the industry calls “guaranteed issue” coverage for the basic benefit. You enroll, you’re in. No blood work, no health questionnaire.
Eligibility usually turns on employment status. Full-time employees typically qualify; part-time and temporary workers are often excluded. New hires commonly wait 30 to 90 days before coverage starts. Some plans require you to be actively at work on the effective date, which can create gaps for employees on extended leave or disability. Enrollment happens during open enrollment or after a qualifying life event like marriage or the birth of a child.
How Much Coverage You Get
Basic and Supplemental
The free, employer-paid coverage is modest. One or two times your annual salary is standard, though some plans use a flat amount like $50,000. That’s the floor. Most plans let you buy supplemental coverage on top, often in multiples of salary up to a cap. Some allow five or eight times salary; others set a flat dollar ceiling. You pay for the supplemental portion through payroll deductions, and if you request a large amount, the insurer may require evidence of good health before approving it.
Many employers also offer voluntary coverage for a spouse and dependents. Limits are lower than for the employee, and the spouse portion almost always requires proof of insurability.
Accidental Death and Dismemberment
A lot of employers bundle AD&D coverage alongside basic life. It pays only when a covered accident causes death or a serious injury like the loss of a limb, eyesight, hearing, or the ability to speak. It does not cover death from illness or disease. If you die in a car accident and both policies apply, your family collects on both. If you die from cancer, only the life insurance pays. AD&D is cheap because the trigger is narrow, so it works as a supplement, not a substitute.
Accelerated Death Benefit
Some group policies include an accelerated death benefit provision that lets you collect part of your death benefit while you’re still alive if a physician certifies you have 24 months or less to live. How much you can accelerate depends on the policy. Money paid to a terminally ill individual under this provision is excluded from federal income tax, the same treatment as a regular death benefit.1Office of the Law Revision Counsel. 26 U.S. Code 101 – Certain Death Benefits
Naming a Beneficiary (and Keeping It Current)
When you enroll, you name one or more beneficiaries and set the percentage each receives. Split it any way you want. If you name nobody, the death benefit usually goes to your estate, which drags the money through probate, delays payout, and exposes it to your creditors. Filling out the form takes five minutes.
The part that catches people out: the beneficiary designation on file with the plan controls who gets paid, and federal law makes that designation extremely hard to override. The Supreme Court held in Egelhoff v. Egelhoff that ERISA preempts state laws that would automatically revoke an ex-spouse’s beneficiary status after divorce.2Justia Law. Egelhoff v. Egelhoff, 532 U.S. 141 (2001) Your divorce decree can say your ex gets nothing. If you never updated the form at work, the insurer will pay your ex anyway. The plan administrator follows the plan documents.
Update your designation after any major life event: marriage, divorce, a new child, or the death of a named beneficiary. Do it through the benefits portal or HR, and save the confirmation.
What It Costs You and How It Shows Up on Your W-2
The basic coverage costs you nothing. Your employer pays the premium, and because it’s a group rate spread across the whole workforce, the per-person cost is far lower than any individual policy. Supplemental coverage comes out of your paycheck. What you pay depends on your age, the coverage amount, and whether you had to go through medical underwriting. Rates step up as you age, typically at five-year intervals.
The $50,000 Rule
Employer-paid group life insurance up to $50,000 is tax-free to you. Once employer-paid coverage exceeds $50,000, the IRS treats the cost of the excess as taxable income, even though no money changes hands.3Office of the Law Revision Counsel. 26 U.S. Code 79 – Group-Term Life Insurance Purchased for Employees This is “imputed income,” and it appears on your W-2. The amount is calculated from the IRS Premium Table, which assigns a monthly cost per $1,000 of coverage based on your age.4Internal Revenue Service. Group-Term Life Insurance A rough sense of the scale: about $0.05 per $1,000 per month under age 25, $0.15 in your late 40s, $0.66 in your early 60s, and $2.06 at 70 and older.
An example. You’re 45 and your employer provides $150,000 in group life coverage. The taxable portion is the $100,000 above the $50,000 exclusion. At $0.15 per $1,000 per month, that’s $15 per month or $180 for the year. That $180 is added to your taxable wages and is also subject to Social Security and Medicare tax. For most workers the amount is small. It grows with age and with higher employer-paid coverage.
What Your Beneficiary Pays in Tax
A life insurance death benefit paid to a beneficiary is generally not subject to federal income tax.5Internal Revenue Service. Life Insurance and Disability Insurance Proceeds A $200,000 payout means $200,000 in their hands. If the beneficiary takes the money in installments instead of a lump sum, any interest that accrues on the unpaid balance is taxable as ordinary income when received.
The death benefit can factor into the deceased’s estate for federal estate tax purposes, but only for very large estates. The federal exemption is $15 million per individual in 2026, so for the vast majority of families this is a non-issue.
What Happens When You Leave the Job
Employer life insurance ends when you leave, whether you quit, get laid off, or retire. Some policies give you a short window of continued coverage after your last day, but the runway is short. Three options may keep some coverage in place.
Portability
If the plan offers portability, you can continue your group coverage by paying premiums directly to the insurer. You keep the group rate structure, but without your employer’s contribution the cost goes up significantly. Coverage amounts may be capped and some insurers set age limits. You typically have to apply within 31 to 60 days after coverage ends. Portability is most useful if you’re in good health and want to hold coverage in place while you shop for an individual policy.
Conversion
Conversion lets you turn your group term coverage into an individual permanent policy, such as whole life or universal life, without a medical exam. If you’ve developed a health condition that would make new individual coverage expensive or unattainable, conversion can be a lifeline. The trade-off is price: permanent policies cost much more than term, and you may not be able to convert the full group amount. Most plans require you to apply within 31 days of losing group coverage. Miss the deadline and the right is generally gone.6eCFR. 29 CFR 2560.503-1 – Claims Procedure
Waiver of Premium for Disability
If you stop working because of a qualifying disability, some group policies keep your life coverage in force with no premium owed. The disability generally must prevent you from working for six months or more, and there may be a waiting period before the waiver takes effect. You file a claim with the insurer and provide medical documentation. The waiver usually expires around retirement age, though an existing claim already in payment may continue.
Filing a Claim
When a covered employee dies, the beneficiary contacts HR or the insurer directly. The insurer will want a certified copy of the death certificate, a completed claim form, and proof of identity. If several beneficiaries are named, each may need to submit their own paperwork.
Under ERISA, the plan administrator must decide a life insurance claim within 90 days of receiving it, with one 90-day extension allowed if special circumstances apply and the administrator notifies the beneficiary in writing before the first deadline expires.6eCFR. 29 CFR 2560.503-1 – Claims Procedure Most straightforward claims pay faster than that.
Claims can be denied. The two most common reasons are death by suicide within the first two years of coverage and material misrepresentation on the enrollment paperwork. If an employee lied about a health condition to obtain supplemental coverage that required medical underwriting, the insurer can void that portion. A denial has to come in writing with an explanation, and you have the right to appeal through the plan’s internal review. If that fails, you can file suit in federal court under ERISA or complain to your state insurance department.
Why It’s Usually Not Enough on Its Own
The biggest mistake with employer life insurance is treating it as the whole plan. One or two times salary sounds substantial until you do the math. If you earn $75,000 and have a $150,000 death benefit, that replaces about two years of income. A mortgage, young children, or a spouse who depends on your earnings will burn through that quickly.
Financial planners commonly recommend carrying coverage equal to 10 to 12 times your annual income, adjusted for debts and family obligations. Employer coverage gets you partway. Most people need a separate individual term policy to fill the rest. A 30-year-old in good health can lock in a 20-year term policy at a relatively small monthly premium, and that coverage follows you regardless of where you work.
The other structural weakness is that the benefit is tied to your job. If you’re laid off, change careers, or retire early, you lose the coverage at the moment when age or new health issues may make replacing it more expensive. An individual policy you own eliminates that risk. The employer benefit is a good deal for what it is. Just don’t build your family’s safety net around something your employer controls.