Coverage line
Group Life Insurance
The benefit that pays a household rather than a provider — the one line a medical plan was never built to carry.
Group life insurance is a death benefit your business buys on the lives of your employees, payable to the people each employee names rather than to the business. Federal tax law treats it as a defined category, not a label: at 26 CFR 1.79-1 it has to provide a general death benefit, cover a group of employees, run under a policy the employer carries directly or indirectly, and set each person’s amount by a formula that precludes individual selection.
That last condition is where group life stops behaving like a policy an individual buys. Neither you nor your employee picks who gets more; the amount follows a formula built on age, service, compensation or position.
Two mechanisms do most of the work below. Group life can cover an employee up to a stated level without evidence of insurability. And when someone leaves, the statutes give a right of conversion into an individual contract and, in defined circumstances, a right of continuation that keeps the group coverage in force.
What it covers and what it does not
The policy pays a general death benefit: an amount payable on the death of a covered employee, to whoever that employee named. The word doing the work in group term life is term. Federal tax regulation, at 26 CFR 1.79-0, draws the line between term and permanent coverage at economic value that outlasts the coverage — paid-up or cash surrender value. Group term life carries none of it: it buys current protection and builds nothing to borrow against or cash out.
The regulation makes that point by exclusion: a right to convert, or to continue, life insurance after group coverage terminates is expressly not a permanent benefit. The rights below are ordinary furniture of a term contract.
What group life is not is accidental death and dismemberment. The tax definition of group term life excludes insurance that does not provide general death benefits — its example is a policy providing only accidental death benefits — and 26 CFR 1.79-1 names the double indemnity rider directly. At 45 CFR 146.145, accident-only coverage, including accidental death and dismemberment, is an excepted benefit rather than health coverage. AD&D also adds a schedule of payments for specified non-fatal losses — a hand, a foot, sight in one eye.
A medical plan and a death benefit answer different questions. Treatment, prescriptions and hospital stays route to Group Health Insurance, which pays for care while an employee is living. Nothing in it reaches the household after that.
The rest of the line-up sits alongside it, not inside it. Routine dentistry, refractive care and replaced income each have their own contract — Group Dental Insurance, Group Vision Insurance and Group Disability Insurance.
How it works for a small business
No health questions below the line the policy draws
Under Fla. Stat. § 627.562 and S.C. Code § 38-65-210 — the two states whose group life codes we read — a policy must set out the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability, as a condition to part or all of that coverage. Evidence of insurability is therefore not automatic; it applies where the policy says it applies. And because the reservation can be written against part of the coverage, a policy can ask nothing up to a stated level and ask for individual evidence above it. Fla. Stat. § 627.552 points the same way from another angle: where the employees contribute no part of the premium, the policy must insure all eligible employees, bar anyone the insurer finds uninsurable and anyone who rejects coverage in writing.
Two different things are called guaranteed issue
The phrase turns up on both sides of a benefits package and does not mean the same thing twice. On the health side it is about acceptance: at 45 CFR 147.104, an issuer must accept an employer applying for a product approved for sale in that market. In group life it names an amount on an individual — coverage up to a stated level, without evidence of insurability, underwritten above the line. One is about whether your business can be turned away; the other about how much one employee can carry before a health question is asked.
The tax rule that turns on a threshold
The Internal Revenue Code, at 26 U.S.C. § 79, includes in an employee’s gross income the cost of employer-carried group term life on that employee’s life, but only to the extent that cost exceeds the sum of two things: the cost of a threshold amount of such insurance, and whatever the employee paid toward it. What is included is a cost — not the face amount, and not your premium. Coverage at or below the threshold that you pay for stays out of wages. Above it, the employee has taxable imputed income, reported as wages on the Form W-2 and subject to Social Security and Medicare taxes, less anything the employee pays after tax. That cost comes from uniform premiums by age bracket prescribed by regulation, which is why it moves as an employee ages.
The same section reaches businesses with owner-officers: where a plan discriminates in favor of key employees, as to eligibility or as to the type and amount of benefits, the entire cost goes into those employees’ wages with no threshold exclusion. A defined set of participation tests can avoid that result. Take this paragraph to a tax adviser.
What changes when your employees pay for the extra layer
At 29 U.S.C. § 1002, ERISA defines an employee welfare benefit plan by the benefits it provides, and those include benefits in the event of death. A voluntary layer — coverage an employee elects and pays for — is defined by what puts a program outside that definition. Under 29 CFR 2510.3-1 it is not a welfare plan where all four of these hold: the employer makes no contributions; participation is completely voluntary; the employer’s sole functions, without endorsing the program, are to let the insurer publicize it and to collect and remit premiums by payroll deduction; and the employer takes no consideration beyond reasonable compensation for that deduction. Miss one — endorsement included — and the program is a welfare plan.
Common claim categories
The claim the certificate is written for
A covered employee dies and the benefit is paid to the people named on that employee’s certificate — which is why it matters that each covered person holds one and has read it.
A death in the gap after separation
Under Fla. Stat. § 627.568, if a person dies during the period in which an individual policy could have been issued on conversion and before it takes effect, the amount that could have been converted is payable as a claim under the group policy. South Carolina carries the same provision.
A loss that is not a death at all
Where an AD&D benefit is in place, a schedule pays for specified non-fatal losses. In the federal government’s own group life program, at 5 CFR 870.206, dismemberment benefits go to the employee and death benefits to beneficiaries — a shape, not a rule for a private policy.
Limits and structure
No figure appears here, deliberately: every amount, every evidence-of-insurability level and every window is a term of one policy in one state.
Conversion: a new individual contract
When coverage ceases because employment ends or the person leaves the covered class, Fla. Stat. § 627.566 and S.C. Code § 38-65-210 entitle that person to have the insurer issue an individual policy of life insurance without evidence of insurability, if application is made and the first premium paid within a short window set in the policy. It is a new individual policy rather than a continuation of the group coverage, and health on leaving does not gate it. The premium is the insurer’s customary rate for the form and amount applied for, the class of risk and the age then attained — a new purchase, not the group rate. It is issued without health or other supplementary benefits, and the forms are restricted: Florida lets the group policy exclude the term option, while South Carolina states them as any form except term.
The right travels with a duty to mention it. Under S.C. Code § 38-65-110, an insured entitled to an individual policy who is not given notice before the election period expires gets an additional period to exercise it — and the statute names the policyholder, in an employee group the employer, as a party who may give it.
Continuation: the same coverage, kept in force
Continuation is not conversion renamed. Conversion replaces group coverage with a new individual contract; continuation keeps the existing group coverage in force. Federal tax regulation at 26 CFR 1.79-0 names the two separately in a single clause — a right to convert, or continue, life insurance after group coverage terminates. Fla. Stat. § 627.5685 supplies one instance: where active employment is a condition of the insurance, an insured may continue coverage during total disability by timely payment to the policyholder of the portion of premium that would have been required had the disability not occurred. The payment goes to the policyholder, under the group contract — the person stays inside your plan, which conversion does not do.
What your employee actually holds
Not the policy. In an employee group the policy is issued to the employer, or to trustees of a fund the employer established, and that party is deemed the policyholder; the insurance is written for the benefit of persons other than the employer. Each covered person receives an individual certificate describing the protection the certificateholder is entitled to, naming those to whom benefits are payable, and setting out the conversion rights. Fla. Stat. § 627.565 and S.C. Code § 38-65-210 require it in near-identical words. Group life and group health answer to different bodies of law, so read this as a group life statement only.
Why Wexford Health Insurance
We place group benefits for small employers across the nine states where we are licensed, and we quote group life with the rest rather than after the medical plan is settled. Being independent, the question we can answer is comparative: what a base amount looks like across the carriers available to your group, where each draws its line for evidence of insurability, and what the conversion and continuation language says in your state. The tax treatment above is mechanism, not advice about your business. To talk it through, call us at 317-942-0549.
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Frequently asked questions about Group Life Insurance
We already offer a health plan. What does group life add?
A medical plan is a contract to pay for care. It answers the question of how treatment gets paid for while your employee is living, and it has nothing addressed to that person’s household afterward. Group life is the benefit that pays a household rather than a provider: an amount payable on the death of a covered employee, to the people that employee named.
Do my employees have to answer health questions to be covered?
That depends on what the policy reserves the right to ask. Under Fla. Stat. § 627.562 and S.C. Code § 38-65-210, a group life policy has to set out the conditions, if any, under which the insurer may require a person to furnish evidence of individual insurability, and the reservation may be written against part or all of a person’s coverage. So a policy can require nothing up to a stated level and require individual evidence above it. Where that line falls is a term of the policy.
Is this the same guaranteed issue I read about on the group health page?
No, and the two are worth keeping apart. On the health side the phrase is about acceptance: at 45 CFR 147.104, an issuer must accept an employer that applies for a product it sells in that market. In group life the phrase names an amount on an individual — coverage up to a stated level issued without evidence of insurability, with underwriting above it. One is about whether your business can be turned away. The other is about how much an individual employee can carry before a health question is asked.
What happens to an employee’s coverage when that person leaves?
Two different rights can apply, and they do different things. Conversion lets the departing person have an individual policy issued without evidence of insurability, priced at the insurer’s customary individual rate for the class of risk and the age then attained, if application is made and the first premium paid inside a short window set in the policy. Continuation keeps the existing group coverage itself in force, and state law supplies at least one instance of it — during total disability, where active employment is a condition of the insurance.
Is the coverage we pay for taxable to our employees?
Partly, and only above a threshold. The Internal Revenue Code, at 26 U.S.C. § 79, includes in an employee’s gross income the cost of employer-carried group term life on that employee’s life, but only to the extent that cost exceeds the cost of a threshold amount plus whatever the employee paid toward it. Below the threshold, employer-paid coverage stays out of wages. Above it, the employee has imputed income, computed from a government cost table by age bracket rather than from the face amount or from your premium.
What does an employee actually receive — a copy of the policy?
No. In an employee group the policy is issued to the employer, or to trustees of a fund the employer established, and that party is the policyholder. Each covered person receives an individual certificate, issued to the policyholder for delivery to the insured, describing the protection, naming to whom benefits are payable, and setting out the conversion rights. Florida and South Carolina both require it in near-identical words; group life and group health are governed by different bodies of law, so this is a group life answer rather than a general one.
Is accidental death and dismemberment part of group life?
It is a separate benefit. The tax definition of group term life excludes a policy providing only accidental death benefits, because that is not a general death benefit; the tax regulation names the double indemnity rider form directly; and federal health rules classify coverage only for accident, including accidental death and dismemberment, as an excepted benefit rather than health coverage. AD&D also adds a schedule of payments for specified non-fatal losses. What a particular rider covers and excludes is a term of that contract.
Can employees buy more coverage on their own through payroll?
They can, and the structure of that layer is defined by what keeps it outside ERISA. Under 29 CFR 2510.3-1, a group or group-type program an insurer offers to employees is not an employee welfare benefit plan where the employer contributes nothing, participation is completely voluntary, the employer’s sole functions — without endorsing the program — are to let the insurer publicize it and to collect and remit premiums by payroll deduction, and the employer takes no consideration beyond reasonable compensation for administering the deduction. Miss any one and the program is a welfare plan. Separately, group term life sits on the Internal Revenue Code’s list of qualified benefits a cafeteria plan may include — expressly including the portion of the cost that cannot be excluded from wages — so a business already running a written cafeteria plan for health premiums can put the election through the same document.
See what a death benefit would look like beside your plan
Send us your headcount and your current plan and we will come back with group life quoted alongside it — the base amount, where evidence of insurability starts, and what an employee could do with it on leaving.