Companies must have it to attract and retain their workforce. Here in Silicon Valley, even the earliest stage startups have life insurance as part of their employee benefit plans.
They need group term life insurance to compete with the biggest tech firms. (They also all have dental insurance plans which are a waste of money, but that’s for another story)…
Make sure the amount of group term life offered by workplace benefit plans is adequate to protect them from financial ruin in the case of an accident or sudden death of the family’s primary and secondary breadwinners. It’s rare that existing group life benefits will be enough for the survivors to maintain their lifestyles without major disruption and hardship.
You can see,on the IRS table below, just how expensive these taxable premium amounts can be. If you’re in you’re a Millennial then it’s not so bad YET… If you’re in your 50’s or 60’s, these taxable premiums start to ramp up quickly. If you are able, my advice would be to ditch the group term life insurance altogether if you are healthy.
Take this example–A female age 55 who earns $300,000 per year. Her company gives her 3x salary to a max benefit of $1M, which is a common benefit scheme at large tech companies in Silicon Valley. Her taxable benefit would be $850,000 ($900k-$50k tax free per IRS regs). Based on the chart from the IRS, she would pay tax on premiums of $.43 per month x 12 or $5.16 per THOUSAND of group term life insurance! So, 850( units of $1,000)x$5.16= $4,386!
If this woman were healthy, she could get $850,000 of 10-year level premium term life insurance for $950-$1,000 per year! Assuming she’s in a high effective tax bracket, this option would save her a TON OF MONEY. Group term life rates are typically priced in 5-year increments, so essentially for her, the group term plan is a 5-year level term policy. I would encourage her to opt out of the group term benefit at open enrollment if possible.
Most often, it’s simply not true and you can save yourself and your family a ton of money. If you’re on a tight budget, then it makes even more sense to get some term insurance quotes. It takes 30 seconds to go to the right side of this page and run some sample term life rates. You’ll find that it’s amazingly cheap and EASY. If you are a new parent, make sure you check out our Guide to Life Insurance For New Parents.