What Is Life Assurance at Work?

Life assurance at work, often called employer-provided group life insurance, is a financial benefit offered by many companies to their employees. This coverage provides a payment to designated beneficiaries if the employee passes away while employed. It offers financial protection, supporting an employee’s loved ones during a difficult time.

Defining Workplace Life Assurance

Workplace life assurance is a group life insurance policy an employer purchases to cover its employees. The primary purpose of this benefit is to provide a lump sum payment, known as a death benefit, to the employee’s chosen beneficiaries upon their death while actively covered. This coverage is usually part of an employee benefits package, aiming to enhance compensation and attract or retain talent.

Unlike individual life insurance policies, where an individual directly purchases and owns the policy, with workplace life assurance, the employer is typically the policyholder, and the employees are the insured individuals. The term “assurance” implies a guaranteed payout upon the employee’s death, generally without an expiry term as long as the employee remains covered by the employer’s plan. Around 75% of full-time U.S. workers have access to such coverage through their employers, often at no cost for basic coverage.

Employers may offer this benefit as a mandatory inclusion for all eligible employees, or they might provide it on a voluntary basis where employees can choose to opt-in. Automatic enrollment in basic coverage is common, ensuring a baseline level of financial protection. While individual policies often require medical underwriting, group life assurance typically involves minimal or no medical questions, making it accessible to a wider range of employees.

Coverage Details and Policy Features

The sum assured, the amount paid out to beneficiaries, is commonly determined in a few ways. It can be a fixed amount for all employees, or more frequently, a multiple of the employee’s annual salary, such as one to three times their base pay. Some policies might also base the coverage amount on an employee’s position.

A key feature is the “death in service” benefit, meaning the payout occurs if the employee dies while actively employed and covered. Employees must designate beneficiaries who will receive the death benefit. Keeping beneficiary information current is important, especially after life events such as marriage, divorce, or the birth of a child, as outdated designations can lead to unintended recipients or legal complications.

Eligibility for coverage typically requires meeting criteria, such as being a full-time employee or having completed a specific length of service. While basic coverage is often sufficient for immediate needs, many plans offer employees the option to purchase supplemental coverage for higher benefit amounts. This supplemental coverage might require premiums paid by the employee and, for larger amounts, could involve a health questionnaire or medical examination.

Employer-provided life assurance typically ceases when an employee leaves their job, retires, or is no longer actively employed. Some policies may offer “portability,” allowing the employee to continue coverage by paying premiums directly, or “conversion” options to switch to an individual policy. These options usually have strict time limits, often within 30 to 60 days of separation, and are not universally available.

Taxation and Employee Considerations

The cost of the first $50,000 of group term life insurance coverage paid by an employer is not considered taxable income to the employee. However, if an employer provides coverage exceeding $50,000, the imputed cost above this threshold is considered taxable income to the employee. This “phantom income” is calculated using IRS tables and is included in the employee’s taxable wages reported on their Form W-2. This amount is subject to federal income, Social Security, and Medicare taxes.

Life insurance death benefits received by beneficiaries are generally excluded from gross income and are not subject to federal income tax. If beneficiaries choose to receive the payout as an annuity or in installments, any interest accrued on the death benefit portion may be taxable. Life insurance proceeds can also be subject to federal estate tax if the value of the deceased’s estate exceeds the federal estate tax threshold, which was $13.61 million for individuals in 2024. If the policy names the estate as the beneficiary, or if the deceased retained certain ownership rights, the proceeds may be included in the taxable estate.

Employees should review policy details provided by their employer, often available through HR departments or online benefits portals. It is advisable to understand coverage limits, any available supplemental options, and the process for updating beneficiary nominations. Employees should consider workplace life assurance as part of their overall financial planning, assessing whether the coverage meets their personal and family needs in conjunction with any individual policies.