Basic life insurance

Offer life insurance with Gusto

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.

Set up deductions for an external life insurance policy

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.

1. Sign in to Gusto.
2. Click the Benefits section.
3. Scroll to "Financial health" and select Group Term Life Insurance.
4. Select Yes, we currently offer this benefit.
5. Click Next.
6. Add a name for the benefit. This will appear on employee paystubs.
7. Enter the employee deduction per pay period.
   • If employees contribute different amounts, enter a placeholder amount for now. You can customize deductions once you create the benefit.
8. Enter the coverage type and amount.
   • The employer contribution, if any, is not recorded. Employees are only taxed on the coverage amount over $50,000, not on employer contributions. We'll automatically calculate and apply taxes based on the coverage amount you enter.
9. Select whether coverage is a flat amount or based on salary. If it's based on salary, enter the multiplier. 
10. Click Save & continue.
11. Select the employees covered by this benefit. You can customize their deductions or coverage amounts after you set up the benefit.
12. Click Save. 

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. 

1. Sign in to Gusto.
2. Click the Benefits section.
3. Under "Manual payroll deductions," click the name of the benefit you set up. 
4. Find the name of an employee and click Edit benefit.
5. Adjust their deduction, coverage type, or coverage amount. 
6. If you need to customize anything else, click Use custom group term life settings. You can enter a custom taxable income amount. You can also make it so deductions will not reduce the taxable income amount.  
7. Click Save.

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:

• Beneficiaries must be 18 or older to claim a life insurance benefit. If you designate a minor, they must be over 18 at the time of the claim or have a designated guardian and trust set up through your state court (Gusto will not take care of this on your behalf).
• You can have up to 5 beneficiaries on your account and assign varying percentages to each of them (i.e. Alex gets 80%, Jordan gets 20%).
• Rules and regulations about who you can list as your beneficiary—like age and where they live—vary by carrier and state. We’ll keep the beneficiaries that you provide on record, but be sure to confirm with your insurance carrier that your beneficiaries are eligible to receive the benefit.

Add a beneficiary in Gusto

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: 

1. Sign in to your Gusto employee account.
2. Go to the Benefits section.  
3. Click the Life tile.
4. Navigate to the Beneficiaries & Distribution tab.
5. Click Add beneficiary.
6. Add your beneficiary's details.
7. Click Save.
8. To add multiple beneficiaries: click Add Beneficiary again and set the percentage of distribution to your preference.

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.

Change a beneficiary 

You can edit a beneficiary's information or change to a different beneficiary at any time. Follow these steps:

1. Sign in to your Gusto employee account.
2. Go to the Benefits section.
3. Click the Life tile.
4. Go to the Beneficiaries & Distribution tab.
5. Click Edit for the beneficiary you'd like to change or update.
6. Here you can edit the following:
   • First name
   • Last name
   • Relationship
   • Birth date
7. Click Save.

Change the payout distribution

You can edit the percentage distribution at any time. Here's how:

1. Sign in to your Gusto employee account.
2. Go to the Benefits section.
3. Click the Life tile.
4. Go to the Beneficiaries & Distribution tab.
5. Under "Payout Distribution," click Change Contribution.
6. Update to your desired percentages. The total percentage across beneficiaries must add up to 100%.
7. Click Save.

Life insurance policies of $50,000 or less 

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.

Life insurance policies over $50,000

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:

• You don’t pay taxes on the first $50,000.
• You do pay taxes on the cost of the coverage that is above $50,000. This is called imputed income.
• The extra taxable amount might show up on your paystub or W-2.

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:

• How much coverage you have over $50,000
• Your age
• How much your employer pays for

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: