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Life & Health Insurance/Group Term Life Insurance


QUESTION: Does a company have to let their employees know of the tax ramifications of the fully paid Group Term Life Insurance given to their employees?  I turned 65 years old this year and am being hit with a large tax bill due to my company paid GTL.  I had no idea I had any cost involved?

ANSWER: While HR SHOULD make employees aware of all benefits, and any ramifications, they will deny liability because somewhere, I guarantee, there is a clause noting "You should discuss these benefits, and any tax consequences with your legal and tax advisors".

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QUESTION: There was no clause anywhere stating these benefits and that any tax consequences should be discussed with a legal and tax advisor.  My company has now added a paragraph stating such on our Intranet site regarding Benefits but only after I made a very big deal out of this.  At my suggestion, they have even added the IRS formula where you can figure out exactly how much will be added to your wages.  They have thanked me effusively for bringing this to their attention and they say they will bring it up during next year's benefits sign up but I have been hit with a large tax bill due to this GTL from 2012 and I don't feel I should be responsible for it although I know I have no choice but to pay it.  Do I have any recourse?  I don't believe someone should be able to give you a benefit in January and the next January without any notice you now have to pay taxes on it.  It doesn't seem legal, ethical or fair.

Hi Lorraine,

Sure is telling about your HR dept., LOL.  Actually it's your fellows who should be carrying you on their shoulders!  The fact is you don't need to be a certified tax attorney and JD  This is really covered in a 101 course.  As you have found the hard way generally speaking an employer can provide $50,000 of term insurance tax free to the employee, while maintaining total deductibility to the employer.

I'm not an attorney (thank God) so you will need to consult one to see if an action can be taken against the employer for this omission.  Arguments can be made for an opt out option so those who don't want to pay the taxes should be able to avoid it.  IMHO what does an average 22 year old single person need hundreds of thousands of death benefit for?  And on the other hand once a person has raised their children, pretty much paid off their mortgage, etc. should be taking that tax $$$ and investing it for retirement.  

FYI, I have worked for companies who, for no charge to the anyone, provided people to sit down with each and every employee and explain things like this.  They made their money selling "supplementary" coverage during the interview.  No one was compelled to buy anything and while some where real hawks, others of us would find niches where a group would benefit.  

I'm pleased I was able to help you correct this, and benefit all your co-workers.

David Clark, CFP

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David Clark


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I've been in the business since 1975, I ran my own agency in New Jersey from 1980 to 1998. I now am a semi-retired sole practitioner in South Florida.

CLU Courses, no designation. LUTC, more seminars then I could count.

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