In this guide
Group life insurance through your job is usually convenient and low cost, but it is typically limited in amount and often ends when your employment does. Individual life insurance is something you own, so you can keep it when you change jobs, and you can choose the amount and type. Many people use both: the workplace benefit as a base and an individual policy for gaps.
Key takeaways
- Group life is often term coverage, offered as a flat amount or a multiple of salary, and may require little or no health screening.
- Coverage usually ends when you leave the employer, though some plans offer portability or conversion with short deadlines.
- Under IRS rules, the cost of employer-provided group-term life above $50,000 of coverage is generally taxable to the employee as imputed income.
- Individual policies stay with you, but you pay the full price and go through underwriting.
How group life insurance works
Under a group policy, an employer, union or association is the policyholder, and employees are covered under it. Many employers provide a basic benefit at no cost to employees, often a flat amount or a multiple of annual pay, and let employees buy extra coverage through payroll deduction. Plans differ, so details come from your benefits summary.
Group plans are usually term insurance. They typically have simplified enrollment, and the amount you can get without answering health questions is often limited. If you want extra coverage, called supplemental or voluntary, the plan may ask health questions above a certain level.
How individual life insurance differs
You apply for an individual policy yourself, and the insurer prices it based on your age, health, tobacco use and other factors. You choose the amount, the type (term or permanent) and the beneficiaries, and the policy continues as long as you pay premiums, regardless of where you work. Our guide on how life insurance works explains the basics, and term vs. whole life compares the common types.
Side-by-side comparison
| Feature | Group life through work | Individual life |
|---|---|---|
| Who owns it | The employer holds the policy; you are a covered member | You own the policy |
| Cost | Often paid in whole or part by the employer; extra coverage by payroll deduction | You pay the full premium |
| Coverage amount | Often a flat sum or multiple of salary, with plan caps | You choose, subject to underwriting |
| Medical underwriting | Often limited or none up to a certain amount | Usually required, though some products use simplified questions |
| If you leave your job | Coverage generally ends; some plans allow portability or conversion | Stays in force if premiums are paid |
| Pricing over time | May change by age band or by plan year | Often level for the term or the policy's life, depending on type |
| Customization | Limited choices and riders | More choices, including riders and permanent options |
The IRS rule on group-term life over $50,000
This is the tax rule many employees miss. The IRS explains in Publication 15-B that an employer can generally exclude the cost of up to $50,000 of group-term life coverage from an employee's wages. Coverage above $50,000 is treated differently.
What the rule says
- The cost of group-term life insurance coverage beyond $50,000, reduced by any amount the employee paid, is included in the employee's wages.
- That amount is reported on the Form W-2 in boxes 1, 3 and 5, and shown in box 12 with code C. It is subject to Social Security and Medicare taxes.
- The cost is not the premium your employer actually pays. It is calculated using the IRS's Table 2-2, based on the employee's age on the last day of the tax year.
- For this tax treatment, insurance generally counts as group-term life only if it is provided to at least 10 full-time employees at some time during the year, with some exceptions.
- The $50,000 exclusion may not apply to certain key employees under a plan that favors them.
IRS Table 2-2: monthly cost per $1,000 of coverage
| Age | Monthly cost per $1,000 |
|---|---|
| Under 25 | $0.05 |
| 25 to 29 | $0.06 |
| 30 to 34 | $0.08 |
| 35 to 39 | $0.09 |
| 40 to 44 | $0.10 |
| 45 to 49 | $0.15 |
| 50 to 54 | $0.23 |
| 55 to 59 | $0.43 |
| 60 to 64 | $0.66 |
| 65 to 69 | $1.27 |
| 70 and older | $2.06 |
These are the figures published in Publication 15-B at the time of writing (as of 2026). The IRS can update them, so check the current publication.
A simple illustration
Say an employer provides $150,000 of group-term life at no cost to an employee who is 45 to 49 years old. Coverage above $50,000 is $100,000, or 100 thousands. At $0.15 per $1,000 per month, that is $15 per month, or $180 for 12 months, which would be included in wages. This is a general example, not tax advice, and your own situation may differ.
Good to know: If the employee pays part of the cost with after-tax money, that amount reduces the taxable figure. Ask your payroll or benefits team how your plan handles this, and consult a tax professional about your own return.
This rule is about the premium cost shown on your paycheck. It is separate from the question of whether a death benefit paid to a beneficiary is taxable, which we cover in are life insurance payouts taxable.
What happens when you leave the job
Group coverage is commonly tied to employment. If you quit, are laid off or retire, coverage typically ends on a date set by the plan. Many plans offer one or both of these options, but not all do:
- Portability. You continue group term coverage as an individual arrangement and pay the insurer directly. Age limits and amount limits may apply.
- Conversion. You convert some or all of the group coverage to an individual permanent policy, usually without a medical exam. Premiums are typically higher than what you paid at work.
Deadlines can be short, often a few weeks to a few months, according to plan materials from several employers and insurers. The deadline in your plan documents is the one that counts. Some people compare these options against buying a new individual policy, which may be cheaper if they are healthy. Never let a deadline pass without checking your options.
Watch out: Losing a job while sick is when losing group coverage hurts most. If you rely heavily on your employer plan, consider whether an individual policy purchased now would give you a safety net that survives job changes.
When group coverage may be enough, and when it may not
It may be enough if
- You have few dependents and modest debts.
- Your needs are small compared with the employer benefit.
- You are comfortable that the benefit is a bonus, not a core plan.
You may want individual coverage if
- Your family would need more than the group benefit provides. Our guide on how much life insurance you need walks through the math.
- You expect to change jobs, start a business or retire before your need ends.
- You want a type of coverage that the group plan does not offer, such as permanent or longer-term coverage.
- You are in good health now and want a price that is set by your health today.
Combining both is common. The group plan covers a base, and the individual policy fills the gap and stays with you when jobs change.
Questions to ask HR
- What is the basic benefit and is it paid by the employer?
- How much supplemental coverage can I buy, and do I need to answer health questions?
- Is there an age reduction? Some plans reduce coverage at certain ages.
- What happens to the coverage if I leave? Are portability and conversion available, and what are the deadlines?
- Is any amount of my coverage taxable under the $50,000 rule, and how will it appear on my W-2?
- Who is my named beneficiary? Update it after major life changes.
If you decide to add individual coverage, compare quotes from several insurers and make sure the policy's terms fit your needs.
Frequently asked questions
Is group life insurance cheaper than individual?
It can be, especially if the employer pays for the basic benefit. For supplemental coverage, group rates may or may not beat individual pricing, particularly for younger, healthy people. Compare both.
Can I keep my group life insurance after I retire?
Some plans allow it, often with reduced amounts or conversion options, while others end coverage at retirement. Check your plan documents.
Is employer-paid life insurance taxable?
Under IRS rules, the cost of group-term life above $50,000 of coverage is generally included in wages for Social Security and Medicare purposes, and shown on the W-2. Coverage up to $50,000 is generally excluded. Consult a tax professional about your situation.
What is the difference between portability and conversion?
Portability usually lets you continue term coverage by paying the insurer directly, while conversion turns the coverage into an individual permanent policy. Premiums and limits differ, and plans may offer only one.
Can my spouse be covered through my employer?
Many plans offer optional spouse and child coverage, often in small amounts. The details depend on the plan.
Sources
- IRS – Publication 15-B, Employer's Tax Guide to Fringe Benefits (group-term life insurance)
- NAIC – Life Insurance (Insurance Topics)
- Minnesota Department of Commerce – Term vs Permanent Life Insurance
General information only. This guide explains general concepts and is not insurance, legal or financial advice. Rules and prices vary by state and insurer. Check your policy documents and speak to a licensed insurance professional or your state insurance department about your situation.