Group life and disability benefits for employers with 2 to 50 employees
Medical coverage is usually the first decision. Group term life and disability benefits are the usual second layer: a death benefit for the employee's beneficiaries, and income replacement if an employee cannot work because of an injury or illness.
These policies are underwritten and issued by insurance companies. What follows is how the benefits are commonly structured and how federal tax rules treat them — not a quote, not a premium, and not a promise that a particular product is available in every state.
Life and disability coverage can be added whether medical coverage is a group plan or an HRA. They are separate policies with their own eligibility rules. Voluntary dental and vision can be built in the same review.
Group term life
A group term life plan pays a stated benefit if an employee dies while covered, often as a flat amount or as a multiple of pay. Many employers also offer accidental death benefits or a voluntary buy-up the employee can pay for.
Under Internal Revenue Code § 79, the cost of up to $50,000 of employer-provided group term life insurance is generally excluded from the employee's wages. Coverage above $50,000 has a taxable imputed cost, figured from an IRS age-based table, reduced by any amount the employee pays. That taxable cost is reported on Form W-2 (boxes 1, 3, and 5, and box 12, code C). IRS Publication 15-B walks through the calculation.
The $50,000 figure is a tax-exclusion limit, not a cap on the benefit you may offer.
Short-term and long-term disability
Short-term disability replaces a portion of wages for a limited period after the employee stops working, following an elimination period set in the policy. Long-term disability is designed for a longer duration, usually after a longer elimination period, and may coordinate with other income sources the policy names.
We will not treat any replacement percentage, elimination period, or benefit duration as a standard or a statistic. Those are plan-design choices the insurer has to issue.
How the benefit is taxed depends on who paid the premium:
- If the employer pays the premiums and the employee did not include those premiums in income, disability benefits are generally taxable to the employee.
- If the employee pays the premiums with after-tax wages, benefits are generally tax-free.
That tradeoff belongs in the enrollment explanation, not as a footnote people find at claim time. IRS Publication 15-B and Publication 525 describe the treatment.
How we help
We will add life and disability to the same proposal as your medical coverage, with eligibility, employer versus employee funding, and the tax treatment written down before enrollment. If a policy cannot be issued in a state where you have employees, we will say so.
Frequently asked questions
Do we have to offer life or disability if we offer medical coverage?
No. These are separate benefits. Many employers add them because the cost is often modest relative to medical coverage, but that is a design choice, not a requirement, and we will not treat a typical cost as a statistic.
Can employees buy more life insurance on their own through the group?
Often yes, as a voluntary buy-up, subject to underwriting. The employer-paid $50,000 tax exclusion does not automatically apply to amounts the employee pays for, and the imputed-income rules still apply to employer-paid coverage above $50,000.
Should the company or the employee pay for disability coverage?
It depends on whether you want the benefit to be taxable if a claim is paid. Employer-paid premiums generally produce taxable benefits; employee after-tax premiums generally produce tax-free benefits. We will put that choice in the proposal.