Most employees believe they have life insurance through work. Most of them have less than they think.
The typical employer-paid policy is one times salary, or a flat amount like $25,000 or $50,000. For someone with a mortgage and two children, that's a few months of breathing room, not a plan.
The gap between those two things — what people have and what they assume they have — is the whole reason this distinction matters.
Group life: the one you provide
Basic group term life is employer-paid and automatic. Employees don't apply, don't answer medical questions, and often don't know the amount.
Key features:
Coverage is usually one to two times annual salary, or a flat amount for everyone.
No medical underwriting — everyone who's eligible is covered.
It's term coverage, with no cash value, and it ends when employment ends.
It costs the employer very little per head, which is why nearly everyone offers it.
Because it's automatic, it's also invisible. Ask five employees what their death benefit is and you'll get five shrugs.
Supplemental life: the one they buy
Supplemental — sometimes called voluntary or optional life — is coverage the employee elects and pays for through payroll deduction. It sits on top of the basic policy.
Key features:
Employees choose a multiple of salary, commonly up to five times, often capped at a dollar maximum.
The employee pays the premium, so it costs the employer nothing beyond the administration.
Rates are banded by age and typically by smoking status, and they step up as employees move between age bands.
Spouse and child coverage can usually be added at small amounts.
Because employees pay for it, it's easy to treat as optional to explain. That's a mistake, and here's why.
Guaranteed issue: the part worth explaining
This is the single most useful thing you can tell an employee about supplemental life, and almost nobody does.
Most group plans include a guaranteed issue amount — a level of coverage an employee can elect with no medical questions and no exam, if they elect it when they're first eligible. Above that amount, or later on, they have to complete evidence of insurability: a health questionnaire, sometimes an exam, and an insurer who can decline them.
So the practical advice is: the cheapest and easiest time to buy is the first time you're offered it. Someone who waits five years and then develops a condition may find the door has closed.
An employee who understands that sentence makes a better decision than one who just sees a deduction on a form.
The $50,000 rule
One piece of tax mechanics catches employers out.
Employer-paid group term life above $50,000 creates imputed income. The value of coverage over that threshold — calculated using the IRS's standard age-banded rate table, not what you actually paid — is taxable income to the employee and must appear on their W-2.
This matters if you're generous. An employer who provides three times salary for a workforce earning $60,000 has pushed everyone well past $50,000 and owes the calculation. It's routine payroll configuration, and it's the kind of thing that gets discovered in an audit rather than in advance.
If you provide more than $50,000 of basic life, ask your payroll provider to confirm imputed income is being calculated. One question, once.
Portability and conversion
When someone leaves, their group coverage generally ends — but usually not instantly, and usually not without options.
Portability lets the employee continue the group term coverage by paying the insurer directly, subject to the policy's rules.
Conversion lets them convert to an individual permanent policy without medical questions, typically at a much higher rate.
Both are time-limited, and the windows are short — often 31 days. Most departing employees are never told, which is a small thing you can fix in your offboarding checklist.
What about AD&D?
Accidental death and dismemberment is frequently bundled with group life and is not the same thing. It pays only if death or injury results from a covered accident. It's inexpensive precisely because it pays rarely.
Useful as a supplement. Not a substitute for life coverage, and worth saying plainly to employees who think their AD&D certificate is a life policy.
Four things to check before your next enrollment
Do your employees know their basic coverage amount? Put it on the enrollment materials in a number, not a formula.
Is the guaranteed issue amount stated clearly, along with the fact that it's easiest to elect at first eligibility?
If you provide more than $50,000 of basic life, is imputed income being calculated on payroll?
Does your offboarding process tell departing employees about portability and conversion, and the deadline?
None of these cost money. All of them are the difference between a benefit that's provided and one that's actually used.
