Last Updated on: May 5th, 2026
Reviewed by Kyle Wilson
Most employees sign up for group term life insurance during onboarding without reading a single line of the policy. That’s the mistake. You assume that you are covered. Your family assumes that you are covered. Then something happens, and the payout is not what anyone expected.
This guide gives you the real answers on group term life insurance, what it covers, what the IRS takes from it, and what happens when you leave your job.
Life group term insurance is a single life insurance policy that will cover a group of people, usually the employees of a company, under one master contract. The employer buys it, then they have to pay part or all of the premium, and employees get coverage without underwriting or medical exams.
It is temporary coverage. The term means that it only lasts while you are part of the group, typically your employment period. The moment you leave, your coverage ends unless you convert it.
According to the IRS Publication 15-B, employers can provide up to $50,000 in group term life insurance as a tax free benefit. Anything above that threshold gets taxable, more on this shortly.
| Coverage Type | Who Pays | Portability | Medical Exam Required |
| Basic Group Term | Employer | No unless converted | No |
| Supplemental Group Term | Employee | Limited | Sometimes |
| Individual Term Policy | Employee | Yes | Usually |
| Permanent Life Insurance | Employee | Yes | Yes |
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This is where most employees get blindsided. Group term life insurance is taxable once employer-provided coverage exceeds $50,000.
The IRS uses what is called the “Table I” rate to calculate the taxable value of coverage above $50,000. Even if you don’t receive that money as cash, the IRS treats the excess as income, and it shows up on your W-2 as imputed income.
| Age Bracket | Monthly Cost per $1,000 of Coverage (IRS Table I) |
| Under 25 | $0.05 |
| 25–29 | $0.06 |
| 30–34 | $0.08 |
| 35–39 | $0.09 |
| 40–44 | $0.10 |
| 45–49 | $0.15 |
| 50–54 | $0.23 |
| 55–59 | $0.43 |
| 60–64 | $0.66 |
| 65–69 | $1.27 |
| 70+ | $2.06 |
So if you are 52 years old and have $200,000 in employer provided coverage, you will owe income tax on roughly $345 per year in imputed income ($0.23 × 150 × 12 = $414, minus any premium you pay yourself.
Not all group term plans are created equal. Carriers like Farmers Group Life Insurance and National Life Group Insurance offer plans with slightly different structures, riders, and conversion options.
Farmers Group Life tends to be offered through employer-sponsored voluntary benefit packages. Their plans often include optional AD&D accidental death and dismemberment riders and portability options, though terms vary by employer contract.
National Life Group Insurance leans heavily on permanent and hybrid life products but also offers group term options, particularly for small to mid-size businesses. Their strength is the flexibility to move employees from group coverage into individual policies over time.
If you work for the United States federal government, you fall under the Federal Employees Group Life Insurance FEGLI program, the largest group life insurance program in the world, covering over 4 million federal employees and retirees as of 2025.
Premiums for FEGLI are split between the employee and the federal government. The Office of Personnel Management OPM oversees the program. Coverage is tied directly to federal employment, leaving federal service triggers a conversion window.
This question comes up most often around auto loans, mortgages, and credit cards. Group credit life insurance is different from employer group term, it is designed to pay off the debt if you die.
Primarily the outstanding loan balance, not your health or age. As the loan decreases, so does your coverage. It’s declining-benefit insurance.
This type is typically issued as a single premium or added to your monthly loan payment. It’s convenient, but it’s rarely the best value. A personal term policy almost always provides more coverage for the same or less cost.
Here is the situation most people do not think about until it is urgent like you leave your job at 58, have health issues now, and can not qualify for individual coverage.
Converting a group plan to permanent life insurance requires you to act within the conversion window, typically 31 days after leaving the group. You don’t need a medical exam to convert. That is the major advantage.
The downside is cost. Permanent life insurance whole life or universal life carries significantly higher premiums than term. You are converting without underwriting, which means that the insurance company prices the policy conservatively.
Retirement is the moment group term life insurance quietly disappears for most people. You spent 30 years covered through your employer. Then, suddenly, you are not.
For seniors approaching retirement, or already there, then this is the coverage gap that causes real financial pain for families. Burial and final expense costs in 2026 average between $8,000 and $12,000 according to the National Funeral Directors Association.
If you are thinking ahead about protecting your family from those costs, Burial Senior Insurance offers straightforward final expense coverage designed for people 50 and older, no complicated medical exams, no confusing policy language.
Group term life insurance is a type of life insurance that you get through your employer or an organization. It covers a group of people under one policy, and the cost is usually lower because the risk is shared. Most of the time, the coverage is only active while you are working for that company.
A group term insurance policy is simply the actual contract that provides this coverage to employees. It usually offers a basic death benefit like 1–2 times your salary, and sometimes you can buy extra coverage at your own cost.
You might feel like you are getting paid for group term life if you see it listed on your paycheck or tax form. This happens because if your employer provides more than $50,000 in coverage, the IRS counts the extra coverage as a taxable benefit. It is not real cash in hand, just a value added for tax purposes.
Some disadvantages of group term life insurance are that it’s not permanent, it usually ends when you leave your job, and the coverage amount may not be enough for your family’s needs. Also, you have limited control over the policy.
No, you cannot cash out group term life insurance. It is a term policy, which means it has no savings or cash value. It only pays out if you pass away while the policy is active.
Financial expert Dave Ramsey is generally not a fan of LIRPs (Life Insurance Retirement Plans). He believes they are often expensive, complicated, and not the best way to invest for retirement. He usually recommends simple term life insurance and investing separately for better long-term results.
Senior Writer & Licensed Life Insurance Agent
Jazmine Cooke is a dynamic and insightful senior writer with a passion for life insurance and financial planning. With over 8 years of hands-on experience in the insurance industry, Jazmine Cooke has earned a reputation for delivering clear, actionable advice that empowers individuals to make informed decisions about their financial future. At Burial Senior Insurance, she not only excels as a licensed insurance agent but also as a trusted guide who has successfully advised over +1500 clients, helping them navigate the often complex world of life insurance and annuities. Her articles have been featured in top-tier financial publications, making her a respected voice in the industry.
Burial Senior Insurance provides information and services related to burial insurance for senior citizens, including policy options and end-of-life support services.
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