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. 

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 these steps to record a life insurance benefit in your company account:

1. Go to the Benefits section.
2. Scroll to "Financial health" and click Group Term Life Insurance.
3. Select Yes - we currently offer this benefit.
4. Click Next.
5. Select whether coverage is a flat amount or based on salary. If it's based on salary, enter the multiplier. 
6. Click Save & Continue.

Customize the benefit for each employee

Once you've added life insurance to your company account, follow these steps if employees have different deductions or salary multipliers from each other. 

1. Click on an employee's name.
2. Enter the total deduction per pay period and salary multiplier.
3. 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 won't reduce the taxable income amount.  

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, and 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.

When life insurance is provided by your employer as part of your compensation plan, your employer may pay your premium but you may owe taxes on those payments for coverage over $50,000. This means that if your policy covers $50,000 or less, you will not pay federal tax on it. However, if your policy covers more than $50,000, then you will pay federal tax as imputed income only on the cost of coverage that is more than $50,000.

The cost of group term life insurance that exceeds $50,000 is based on federal premium tables, which provide the cost of each $1,000 of excess coverage per month that should be included in federal taxable income of the employee. The cost of coverage is based on the employee’s age, the amount of coverage over $50,000, and the amount of coverage the employer pays for. The IRS premium tables are published in federal regulations, and can also be found in the IRS Employer’s Guide to Fringe Benefits. A copy of the federal premium tables as of 2023 is included below:

Cost Per $1,000 of Protection for 1 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 tax 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 that you are 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: