Basic life insurance provides a benefit to a beneficiary if the person covered by the policy passes away, or in the event of certain accidents during the defined covered period.
Admins can see quotes and apply for insurance benefits anytime. You must offer medical coverage through Gusto in order to offer life insurance or any other benefits.
When your company offers life insurance through Gusto, all eligible employees are automatically enrolled. The policy is non-voluntary, meaning the company pays 100% of the premium and all eligible employees are automatically enrolled. Dependents are not eligible to enroll.
If you offer a group term life insurance through a broker outside of Gusto, you can add the benefit to Gusto to record taxes and collect any employee contributions.
Add life insurance to payroll
Follow the steps below to record a life insurance benefit in your company account.
Customize the benefit for each employee
Once you add life insurance to your company account, follow the steps below if employees have different deductions or salary multipliers from each other.
When you enroll in a life insurance policy, you can designate a beneficiary or add one later anytime. A beneficiary is someone who will receive the benefits of a life insurance policy in the event of the policy-holder’s death.
Some info to keep in mind before you choose your beneficiaries:
If your company has a life insurance policy managed by Gusto, you can add one or more beneficiaries while initially enrolling in benefits. You can add or change beneficiaries anytime. Follow these steps:
In the event of the insured’s death, the carrier will reach out to Gusto for beneficiary information. Each time a beneficiary is changed, the most recent update will be used to distribute the policy benefits.
You can edit a beneficiary's information or change to a different beneficiary at any time. Follow these steps:
You can edit the percentage distribution at any time. Here's how:
If your employer pays your premiums for group life insurance and the coverage is $50,000 or less, you will not owe any taxes on it.
Because there are no tax implications, this coverage will not show up on your paystub or W-2. Only coverage over $50,000 needs to be reported for tax purposes.
If your life insurance coverage is over $50,000 and your employer pays for it, the amount over $50,000 is considered a taxable benefit. This means:
How the taxable amount is calculated
The IRS uses a premium table to figure out how much your extra coverage is worth. The table shows how much each $1,000 of extra coverage costs per month. That cost is added to your federal taxable income, based on:
You can find the full IRS table in the IRS Employer’s Guide to Fringe Benefits. We’ve also included a copy of the 2023 version below.
Cost per $1,000 of protection for one month |
|
Age | Cost |
Under 25 | $0.05 |
25 through 29 | 0.06 |
30 through 34 | 0.08 |
35 through 39 | 0.09 |
40 through 44 | 0.10 |
45 through 49 | 0.15 |
50 through 54 | 0.23 |
55 through 59 | 0.43 |
60 through 64 | 0.66 |
65 through 69 | 1.27 |
70 and older | 2.06 |
Source: IRS Employer’s Guide to Fringe Benefits (2023)
Example calculation
John’s life insurance policy covers $200,000, he is 45 years old, and the premium is fully paid by his employer. John does not need to pay federal taxes on the first $50,000 worth of coverage, but he will pay federal taxes on the excess $150,000 of coverage. The total cost to include in John’s federal taxable wages would be $270 per year (0.15 x 150 x 12).
Note: If an employee is contributing to a life insurance policy, contributions will default to post-tax deductions unless otherwise specified. Learn more from the IRS.
If your policy is managed by Gusto and you leave your job, we'll email you with your options to keep your life insurance policy after employment.
If you decide to continue your policy, you can either port or convert the coverage. Once you decide, contact your insurance carrier for next steps—sign into your carrier's member website or call the number on the back of your insurance card. You'll need to submit your application to the carrier within 31 days of the end of your employer coverage.
Porting vs. converting coverage
Porting means you're choosing to continue your group policy after employment. Converting means that you are taking your group policy and converting it to an individual policy.
Use the following chart to help you decide whether you'd like to port or convert your coverage: