"FREE" Employer Group Life - Really Costs You !

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
SanityCheck
Posts: 35
Joined: Thu Feb 19, 2015 9:40 am

"FREE" Employer Group Life - Really Costs You !

Post by SanityCheck » Tue Feb 27, 2018 11:15 am

Has anyone ever taken a hard look at the whole "imputed Income" item on your W2 form ? This is where "income" is added back to your gross for tax purposes; namely the "premium" cost of employer provided Group Life over $50,000. My employer provides us 2X salary in group life at no direct cost to us; however the IRS makes the employers use their own table to calculate the premium cost that is added back to your income. The "real" employer cost of the insurance irrelevant (which is somewhat strange).

This gross pay addition is a fairly small number if you are less than age 50; but at older ages the premium income calculation quadruples between age 59 and 70. For example for me ; two years ago (age 59); I had about 1300 added to my gross......this past year (age 60) I had about 2100 added to my gross (resulting in about 600 in additional Fed tax being owed.)

Had I been age 70....they would have added over 6600 to my gross !! and a fairly high tax bill !

For someone who does not really need life insurance (due to holdings of personally acquired term insurance or other circumstances).......have you refused that "free" employer life Insurance ? (I'm not even sure that is an option for me.....I'll need to check with HR).
Thanks !

spectec
Posts: 1044
Joined: Mon Jul 14, 2014 8:00 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by spectec » Tue Feb 27, 2018 11:24 am

If I worked for a company which offered this benefit, I'd gladly sign up. It isn't every day you can buy life insurance at a 60% discount off the full premium. (That's assuming a 40% combined Fed & State tax rate)
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

TIAX
Posts: 1002
Joined: Sat Jan 11, 2014 12:19 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by TIAX » Tue Feb 27, 2018 11:34 am

There is no imputed income if the value of the policy is 50k or less and you may be able to ask your employer to limit your policy so you avoid imputed income.

niceguy7376
Posts: 1900
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: "FREE" Employer Group Life - Really Costs You !

Post by niceguy7376 » Tue Feb 27, 2018 11:38 am

OP,
For the amount of coverage you are receiving, what would be the premiums from the same insurance company if you ask for quote individually?

Would it be the $2100 annual premium or less or more?

123
Posts: 3079
Joined: Fri Oct 12, 2012 3:55 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by 123 » Tue Feb 27, 2018 11:40 am

I know that some Megacorps will allow you to decline "FREE" employer-provided group life. The main reason for doing so, as you have indicated, is that the imputed taxable income may not be worth it. I haven't yet been in a situation where I would decline it but, like many things, there is a cost to something the is provided "FREE" and it's always a good idea to monitor things. It's another reason to do your own taxes so you become conscious of all those numbers on the W-2.
The closest helping hand is at the end of your own arm.

sport
Posts: 6625
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: "FREE" Employer Group Life - Really Costs You !

Post by sport » Tue Feb 27, 2018 11:40 am

If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
Last edited by sport on Tue Feb 27, 2018 11:42 am, edited 2 times in total.

Longdog
Posts: 1021
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: "FREE" Employer Group Life - Really Costs You !

Post by Longdog » Tue Feb 27, 2018 11:41 am

Wow, I never really thought about that. I saw it as a free non-optional benefit. Mine is about $600, which translates to roughly $200 in extra taxes for the “free” benefit. Thanks for pointing this out.
Steve

User avatar
SanityCheck
Posts: 35
Joined: Thu Feb 19, 2015 9:40 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by SanityCheck » Tue Feb 27, 2018 11:49 am

niceguy7376 wrote:
Tue Feb 27, 2018 11:38 am
OP,
For the amount of coverage you are receiving, what would be the premiums from the same insurance company if you ask for quote individually?

Would it be the $2100 annual premium or less or more?
As I mentioned before....the "fake premium" number added back to your gross is based on an IRS TABLE...not reality of the underlying employer cost. The numbers seem high based on this table.....it looks like I could get a term life policy on the street for a quarter of that $2100 (for the same coverage level)

User avatar
SanityCheck
Posts: 35
Joined: Thu Feb 19, 2015 9:40 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by SanityCheck » Tue Feb 27, 2018 11:50 am

123 wrote:
Tue Feb 27, 2018 11:40 am
I know that some Megacorps will allow you to decline "FREE" employer-provided group life. The main reason for doing so, as you have indicated, is that the imputed taxable income may not be worth it. I haven't yet been in a situation where I would decline it but, like many things, there is a cost to something the is provided "FREE" and it's always a good idea to monitor things. It's another reason to do your own taxes so you become conscious of all those numbers on the W-2.
Excellent points .....you and I are "on the same page" !!

BogleMelon
Posts: 1166
Joined: Mon Feb 01, 2016 11:49 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by BogleMelon » Tue Feb 27, 2018 11:58 am

Mine is too small premium to worry about, only $40. If it was that high as the OP is saying, and I don't need it, I would defiantly fight with HR to cancel it.
sport wrote:
Tue Feb 27, 2018 11:40 am
If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
+1 I agree to that
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

ResearchMed
Posts: 6016
Joined: Fri Dec 26, 2008 11:25 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by ResearchMed » Tue Feb 27, 2018 11:59 am

Well, I guess Employer "helps" us get away without ANY such imputed income.

That's because... they provide the $50k, and all other coverage (up to a max of 5x salary) must be paid in full :annoyed

We'd happily pay the tax on that premium amount rather than the premium itself!

However, there is good news: No need for medical underwriting unless one increases coverage after the initial hiring period, so it's guaranteed and at good rates.

RM
This signature is a placebo. You are in the control group.

User avatar
Clever_Username
Posts: 934
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: "FREE" Employer Group Life - Really Costs You !

Post by Clever_Username » Tue Feb 27, 2018 12:37 pm

sport wrote:
Tue Feb 27, 2018 11:40 am
If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
Agreed. Where do I check for this on this year's W2? The only boxes I don't know the meaning of is 12a and 12b, unless I'm missing something.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

nickjoy
Posts: 74
Joined: Tue Jun 06, 2017 9:44 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by nickjoy » Tue Feb 27, 2018 12:37 pm

The age brackets and cost facctors are below:

Under 25 $0.05
25-29 $0.06
30-34 $0.08
35-39 $0.09
40-44 $0.10
45-49 $0.15
50-54 $0.23
55-59 $0.43
60-64 $0.66
65-69 $1.27
70+ $2.06

Jazzysoon
Posts: 7
Joined: Tue Jan 09, 2018 3:05 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by Jazzysoon » Tue Feb 27, 2018 12:38 pm

I used to get the 2x salary Until my HR Block tax guy a few years back pointed out the 'imputed income'. As I do not need the life ins, I stopped it, my tax guy usually finds ways to reduce taxes a bit (yes helps justify his fee).

nickjoy
Posts: 74
Joined: Tue Jun 06, 2017 9:44 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by nickjoy » Tue Feb 27, 2018 12:40 pm

I work in payroll and a lot of people don't understand this. We add it to your gross and then deduct it so you only pay tax on it. But some people have $140 per bi-weekly paycheck added which is a lot.

My company has about 3700 employees and will absolutely not let anyone opt out of it. I pay $1.27 on my paycheck so it's not really a factor for me. But as I get older I would really want to get rid of it.

vested1
Posts: 1367
Joined: Wed Jan 04, 2012 4:20 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by vested1 » Tue Feb 27, 2018 1:02 pm

My former megacorp does this as well. The basic life insurance is 1 x highest yearly base salary, but the payout decreases by 10% every year between ages 65 and 70, remaining at 50% from age 70 on. Imputed income on the W2 from the basic life insurance goes up every year but is still low at $272 in 2017, age 65.

I dropped the additional 3 x base salary at age 65 because the out of pocket premium was several times what an insurance company would charge on the open market for a comparable payout. This spike in premiums comes immediately at age 65, effectively driving retirees out of the extra coverage.

The thing is, that megacorp is self-insured, so the imputed income is totally made up, although likely a nice tax exemption for megacorp when multiplied by 300,000 current and former employees.

Edited to remove assumptions after rechecking. The 3 x supplemental life insurance was to transition to Met Life at age 65, with a premium so high that virtually no one takes it. The basic life insurance is still retained. At some point, likely age 69, the payout will drop below 50k and will no longer incur imputed income.
Last edited by vested1 on Tue Feb 27, 2018 1:39 pm, edited 1 time in total.

lostinjersey
Posts: 159
Joined: Thu Nov 18, 2010 3:29 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by lostinjersey » Tue Feb 27, 2018 1:10 pm

My Megacorp lets you decline coverage greater than $50k. However, if you later decide you want to go back up to whatever the basic coverage is, you have to provide Evidence of Insurability. This is a standard practice for coverage of this type, so think long and hard about dropping to $50k.
Last edited by lostinjersey on Tue Feb 27, 2018 1:40 pm, edited 1 time in total.

vested1
Posts: 1367
Joined: Wed Jan 04, 2012 4:20 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by vested1 » Tue Feb 27, 2018 1:38 pm

deleted

ralph124cf
Posts: 1870
Joined: Tue Apr 01, 2014 11:41 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by ralph124cf » Tue Feb 27, 2018 1:44 pm

There are many medical conditions that would make life insurance cost prohibitive on the open market. This is a good argument for keeping the employer life insurance until you reach FI.

Ralph

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Tue Feb 27, 2018 1:49 pm

SanityCheck wrote:
Tue Feb 27, 2018 11:49 am
niceguy7376 wrote:
Tue Feb 27, 2018 11:38 am
OP,
For the amount of coverage you are receiving, what would be the premiums from the same insurance company if you ask for quote individually?

Would it be the $2100 annual premium or less or more?
As I mentioned before....the "fake premium" number added back to your gross is based on an IRS TABLE...not reality of the underlying employer cost. The numbers seem high based on this table.....it looks like I could get a term life policy on the street for a quarter of that $2100 (for the same coverage level)
I don't recall it ever being presented to me as "free" & understand the imputed income. What I didn't understand was the difference in rates. This hasn't always been the case. Since the IRS uses (understandably) a "one size fits all" approach, I wonder how many people can get the cheaper rate. I also don't think they refresh these rates often. It's been a while since I did any checking. At one point, this wasn't that bad a deal.

Sanitycheck, is your source for rates one that you'd share & the rest of us could access? I know insurance rates aren't hard to come by, but they often seem to want contact info, etc

Also, I'm curious as to whether younger employees see this as less of a benefit. Those who used to get hired with a "30 years & a gold watch" may have seen this more favorably than now when job changes are expected. Thoughts?

alpaca1
Posts: 32
Joined: Wed Jan 17, 2018 7:34 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by alpaca1 » Tue Feb 27, 2018 2:20 pm

TIAX wrote:
Tue Feb 27, 2018 11:34 am
There is no imputed income if the value of the policy is 50k or less and you may be able to ask your employer to limit your policy so you avoid imputed income.
How would you find out minus asking your HR how much the policy was for a year? There is no way that my company with mostly older folk .. which has about 200 or so employees has less than 50k a year the policy though.

Iridium
Posts: 145
Joined: Thu May 19, 2016 10:49 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by Iridium » Tue Feb 27, 2018 2:34 pm

alpaca1 wrote:
Tue Feb 27, 2018 2:20 pm
TIAX wrote:
Tue Feb 27, 2018 11:34 am
There is no imputed income if the value of the policy is 50k or less and you may be able to ask your employer to limit your policy so you avoid imputed income.
How would you find out minus asking your HR how much the policy was for a year? There is no way that my company with mostly older folk .. which has about 200 or so employees has less than 50k a year the policy though.
The $50K is the death benefit payable to you. So, the other employees are irrelevant. If the employer pays for a $125K policy for you, then you will have $75K of life insurance you have to pay tax on.

libralibra
Posts: 142
Joined: Sat Jul 30, 2011 2:01 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by libralibra » Tue Feb 27, 2018 3:54 pm

I dropped this to 50k years ago and bought AD&D instead. For me, I figured I was much more likely to die by accident than other causes, and AD&D was much cheaper - a million coverage for $5 a paycheck! Of course, probably not appropriate for everyone.

Jack FFR1846
Posts: 6648
Joined: Tue Dec 31, 2013 7:05 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by Jack FFR1846 » Tue Feb 27, 2018 3:56 pm

I'll absolutely opt out next year. This year, paid tax on just under $1000. I could buy open market for $1200. I don't buy open market because I've already saved enough that if I were to die right now, the family would need zero to continue, including all college and health insurance plus no work whatsoever forever.
Bogle: Smart Beta is stupid

TOJ
Posts: 348
Joined: Wed Mar 02, 2016 9:19 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by TOJ » Tue Feb 27, 2018 4:17 pm

nickjoy wrote:
Tue Feb 27, 2018 12:37 pm
The age brackets and cost facctors are below:

Under 25 $0.05
25-29 $0.06
30-34 $0.08
35-39 $0.09
40-44 $0.10
45-49 $0.15
50-54 $0.23
55-59 $0.43
60-64 $0.66
65-69 $1.27
70+ $2.06
That is this telling me? Cost per $1000 over $50k per month, year?

afan
Posts: 3350
Joined: Sun Jul 25, 2010 4:01 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by afan » Tue Feb 27, 2018 4:27 pm

We get to opt out. I think there is some minimum age at which this becomes an option. Apparently, many people drop the coverage once they are able to.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Tue Feb 27, 2018 4:44 pm

TOJ wrote:
Tue Feb 27, 2018 4:17 pm
nickjoy wrote:
Tue Feb 27, 2018 12:37 pm
The age brackets and cost facctors are below:

Under 25 $0.05
25-29 $0.06
30-34 $0.08
35-39 $0.09
40-44 $0.10
45-49 $0.15
50-54 $0.23
55-59 $0.43
60-64 $0.66
65-69 $1.27
70+ $2.06
That is this telling me? Cost per $1000 over $50k per month, year?
Cost per $1000 per month of coverage in excess of $50k. So, for low end extreme, a 24 year old with $51,000 coverage, would be $1000 in excess, so $0.05 per month or imputed income for the year of 60 cents. A 70 year old with $100,000 coverage would be $50,000 in excess, $1236 imputed income for the year (hoping I did math right!)

alpaca1
Posts: 32
Joined: Wed Jan 17, 2018 7:34 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by alpaca1 » Wed Feb 28, 2018 8:01 am

Iridium wrote:
Tue Feb 27, 2018 2:34 pm
alpaca1 wrote:
Tue Feb 27, 2018 2:20 pm
TIAX wrote:
Tue Feb 27, 2018 11:34 am
There is no imputed income if the value of the policy is 50k or less and you may be able to ask your employer to limit your policy so you avoid imputed income.
How would you find out minus asking your HR how much the policy was for a year? There is no way that my company with mostly older folk .. which has about 200 or so employees has less than 50k a year the policy though.
The $50K is the death benefit payable to you. So, the other employees are irrelevant. If the employer pays for a $125K policy for you, then you will have $75K of life insurance you have to pay tax on.
Thank you sir/maam.

taguscove
Posts: 150
Joined: Sun Dec 11, 2016 6:49 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by taguscove » Wed Feb 28, 2018 8:10 am

It is interesting to me that people would opt out of a life insurance benefit. Dying seems like a major negative loss to me, and getting paid a huge sum of cash is a way to make a bad situation better.

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Wed Feb 28, 2018 9:14 am

taguscove wrote:
Wed Feb 28, 2018 8:10 am
It is interesting to me that people would opt out of a life insurance benefit. Dying seems like a major negative loss to me, and getting paid a huge sum of cash is a way to make a bad situation better.
I'm a little puzzled myself & would be interested in more detailed explanations as to why. I'm sure there are some individual circumstances & few things are for everyone. I get not buying something I don't "need" -- but then again much of what I do buy I don't need. Why would I "want" it? This is where I wonder if the numbers are indeed correct.

Upthread, I threw out a couple of examples & so far no one has corrected them. So, look at the example for the 70 year old who gets $100,000 coverage & has imputed income of $1236. I personally wouldn't pay close to 40% tax on that, but use that as nice round conservative guess. Says it would cost me $500. That means instead of being free I'm paying $500 for something I don't need...but also means that $500 becomes $100,000 after tax if I die. If I live 30 years, I'd pay $15,000 -- die at age 100 -- & my estate gets $100K.

Also upthread, OP said the rates were such that he would pay only about a 1/4 "on the street" for same coverage. If that held true in this case, you'd be paying about $125 for 100K....

The return rate will vary based on age, coverage, and of course when someone dies. Someone on this board could probably calculate the return rate for various ages & length of term...

I don't really think of it as an investment, but is it really that bad a return?

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Wed Feb 28, 2018 9:40 am

Just after last post, I realized that perhaps in my example in previous post I should have gone higher than 40% for those high income folks in high tax states. You do pay income tax, but also Fica, etc. I won't try to guess the maximum rate paid though. The example was never meant to be precise or universal to all readers.

And to be clear, I don't sell insurance. I can't even tell you what the going rate is for term! Would love to hear from some who have bought on the open market as to how much they pay per $1000 for comparison purposes

User avatar
N1CKV
Posts: 704
Joined: Wed Mar 21, 2012 8:18 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by N1CKV » Wed Feb 28, 2018 9:46 am

taguscove wrote:
Wed Feb 28, 2018 8:10 am
It is interesting to me that people would opt out of a life insurance benefit. Dying seems like a major negative loss to me, and getting paid a huge sum of cash is a way to make a bad situation better.
I would opt out if I were offered this product. I do not have any optional life insurance. For me it is a useless product at any cost.

I am 39, I have no kids but I do have a wife. I have no debt and my assets include my house and healthy retirement accounts in addition to a pension.
The only possible benefit would be for my wife to never have to work again. At her ripe age of 35 I am not really interested in providing that just because I am dead.
My employer does provide a life insurance policy of something like $10K (so not taxable as imputed income), that is plenty.
I have met a lot of people that claim to love money, but they also seem to be the same people that are in the biggest hurry to get rid of it.

User avatar
samsoes
Posts: 704
Joined: Tue Mar 05, 2013 9:12 am
Location: Northeast Rat Race

Re: "FREE" Employer Group Life - Really Costs You !

Post by samsoes » Wed Feb 28, 2018 9:55 am

taguscove wrote:
Wed Feb 28, 2018 8:10 am
It is interesting to me that people would opt out of a life insurance benefit. Dying seems like a major negative loss to me, and getting paid a huge sum of cash is a way to make a bad situation better.
Unless there's a way I can take it with me after I assume room temperature, I have no need for it.

(Single, no dependents).
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

NotWhoYouThink
Posts: 1675
Joined: Fri Dec 26, 2014 4:19 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by NotWhoYouThink » Wed Feb 28, 2018 10:01 am

I don't really think of it as an investment, but is it really that bad a return
The topic here is a group insurance plan through an employer. So it only pays out if I die before I retire. I did not, my spouse is planning to live at least until retirement at the end of the year, and almost everyone we know either has already survived retirement or plans to. So the payout is usually $0.00. Sure, some people do die on the job and the insurance pays out, but it's not something a lot of us would choose to pay for. Like a lottery ticket.

vested1
Posts: 1367
Joined: Wed Jan 04, 2012 4:20 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by vested1 » Wed Feb 28, 2018 10:26 am

not4me wrote:
Wed Feb 28, 2018 9:14 am
taguscove wrote:
Wed Feb 28, 2018 8:10 am
It is interesting to me that people would opt out of a life insurance benefit. Dying seems like a major negative loss to me, and getting paid a huge sum of cash is a way to make a bad situation better.
I'm a little puzzled myself & would be interested in more detailed explanations as to why. I'm sure there are some individual circumstances & few things are for everyone. I get not buying something I don't "need" -- but then again much of what I do buy I don't need. Why would I "want" it? This is where I wonder if the numbers are indeed correct.

Upthread, I threw out a couple of examples & so far no one has corrected them. So, look at the example for the 70 year old who gets $100,000 coverage & has imputed income of $1236. I personally wouldn't pay close to 40% tax on that, but use that as nice round conservative guess. Says it would cost me $500. That means instead of being free I'm paying $500 for something I don't need...but also means that $500 becomes $100,000 after tax if I die. If I live 30 years, I'd pay $15,000 -- die at age 100 -- & my estate gets $100K.

Also upthread, OP said the rates were such that he would pay only about a 1/4 "on the street" for same coverage. If that held true in this case, you'd be paying about $125 for 100K....

The return rate will vary based on age, coverage, and of course when someone dies. Someone on this board could probably calculate the return rate for various ages & length of term...

I don't really think of it as an investment, but is it really that bad a return?
Easy answer for many in the situation where supplemental is out of pocket, and who have attained the status of "senior" (65). In my case, supplemental of 3 x base (around $195,000) was about $650 a month. It was always more about cost than imputed income. In my case the cost raised every year but spiked at age 65. Contrary to a previous post, it wasn't limited to a bracketed range of ages, but rose every single year.

As for the base, 10% less payout every year from age 65 to 70, yet rising premiums for every one of those years displays an intention of winnowing the field by the previous employer, a strictly monetary decision. I'll retain the "free" base benefit and accept the imputed income until the benefit drops below 50k and the imputed income disappears. That doesn't mean I have to like it.

In my case, the insurance was a bargained for benefit, with higher compensation while working forfeited in the bargain, and something that decreases in value with age. Insurance isn't an investment however, and that is understood.

afan
Posts: 3350
Joined: Sun Jul 25, 2010 4:01 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by afan » Wed Feb 28, 2018 10:39 am

People opt out for the same reason they do not spend every available penny on life insurance.

They figure how much they need and and buy that amount. If they have to pay for insurance, and paying tax on imputed income is paying for it, then there comes a point with the value does not justify the cost. As they get older the cost increases sharply, and the family need, usually, declines. The need can decline sharply as major expenses are put to rest -kids finish their educations, mortgage paid off, retirement fully funded. For someone in that situation buying life insurance can be a pure waste of money.

Remember, the insurance stops when you stop working. So living to 100 is only relevant if one kept working that whole time. Not many people hit that age and are still able to work full time. A healthy 60 year old is highly likely to make it to 65. If they retire before they die then the life insurance pays nothing.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Wed Feb 28, 2018 10:47 am

vested1 wrote:
Wed Feb 28, 2018 10:26 am
I'll retain the "free" base benefit and accept the imputed income until the benefit drops below 50k and the imputed income disappears. That doesn't mean I have to like it.
.
Yeah, I was really talking about those that said they'd turn down the base benefit, not buying supplemental. I've known several who bought supplemental because their health was such that they couldn't buy on the open market. Otherwise, not so much

not4me
Posts: 261
Joined: Thu May 25, 2017 3:08 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by not4me » Wed Feb 28, 2018 10:57 am

afan wrote:
Wed Feb 28, 2018 10:39 am
People opt out for the same reason they do not spend every available penny on life insurance.

They figure how much they need and and buy that amount. If they have to pay for insurance, and paying tax on imputed income is paying for it, then there comes a point with the value does not justify the cost. As they get older the cost increases sharply, and the family need, usually, declines. The need can decline sharply as major expenses are put to rest -kids finish their educations, mortgage paid off, retirement fully funded. For someone in that situation buying life insurance can be a pure waste of money.

Remember, the insurance stops when you stop working. So living to 100 is only relevant if one kept working that whole time. Not many people hit that age and are still able to work full time. A healthy 60 year old is highly likely to make it to 65. If they retire before they die then the life insurance pays nothing.
Really two points here & I'll start with the 2nd one first. The cases I'm most familiar with are those where the insurance does NOT stop when you stop working if you "retire" from that company. I talked with someone in last couple of weeks about their family member who died at end of last year, but hadn't worked since 1990s. They mentioned specifically about what the family was planning on doing with that money. That distinction may explain some of the disconnect.

The other point you raised was about people who figured out how much they need & bought it.... Well, I was talking only about the imputed income from that which was provided -- not even supplemental. So, if someone figured out they needed $100k worth of insurance, bought it even though their company benefit was for $150K (for example)....no that isn't what I was talking about!

Wagnerjb
Posts: 7185
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Re: "FREE" Employer Group Life - Really Costs You !

Post by Wagnerjb » Wed Feb 28, 2018 12:49 pm

Clever_Username wrote:
Tue Feb 27, 2018 12:37 pm
sport wrote:
Tue Feb 27, 2018 11:40 am
If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
Agreed. Where do I check for this on this year's W2? The only boxes I don't know the meaning of is 12a and 12b, unless I'm missing something.
The amounts of excess life insurance are reported in box 12 with a "C" designation.

Best wishes.
Andy

User avatar
neurosphere
Posts: 2743
Joined: Sun Jan 17, 2010 1:55 pm
Location: NYC

Re: "FREE" Employer Group Life - Really Costs You !

Post by neurosphere » Wed Feb 28, 2018 1:00 pm

I've only skimmed part of this thread, but wanted to point out that imputed income can indeed be a big deal. My employer provides UNIVERSAL life insurance that I cannot opt out of, and which I don't need. It's expensive, and although the employer pays for it, $5000 in imputed income ends up on my W2. :annoyed

User avatar
Clever_Username
Posts: 934
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: "FREE" Employer Group Life - Really Costs You !

Post by Clever_Username » Wed Feb 28, 2018 1:18 pm

Wagnerjb wrote:
Wed Feb 28, 2018 12:49 pm
Clever_Username wrote:
Tue Feb 27, 2018 12:37 pm
sport wrote:
Tue Feb 27, 2018 11:40 am
If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
Agreed. Where do I check for this on this year's W2? The only boxes I don't know the meaning of is 12a and 12b, unless I'm missing something.
The amounts of excess life insurance are reported in box 12 with a "C" designation.

Best wishes.


Thank you! The good news for me is that box is empty for 2017.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

Ginkgo
Posts: 4
Joined: Sun Feb 04, 2018 12:20 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by Ginkgo » Wed Feb 28, 2018 10:45 pm

Thanks OP for the topic! I was wondering whether I should dump it after some time, since my other term life covers the need.

Upon further digging, though, it seems employer could offer “uninsured death benefit”, that is not an insurance, but otherwise acts almost the same, but employee is not subject to imputed income. The catch is the death benefit becomes taxable income to the beneficiary. Nonetheless, compared to the alternative of cancelling the coverage altogether, this seems a better option. I am curious if Anybody explored this?

Tamales
Posts: 1218
Joined: Sat Jul 05, 2014 10:47 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by Tamales » Thu Mar 01, 2018 12:03 am

For info and the table, see IRS Publication 15b:
https://www.irs.gov/pub/irs-pdf/p15b.pdf
on page 13

General IRS info on group term life: https://www.irs.gov/government-entities ... -insurance

You'll also need to refer to your employee benefit handbook to find your coverage amount (e.g. 2x 'salary') and what portions of pay they include in determining it.

The is also probably an entry on your paycheck listed as life or group life or term life or whatever, to show you how much per paycheck and on your last check of the year for the total added to income.

28fe6
Posts: 31
Joined: Wed Jan 03, 2018 9:01 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by 28fe6 » Thu Mar 01, 2018 2:35 am

There is a line on my paystub that is called "gtl" and I thought that it was grossing me up for the taxes on these benefits. It's a positive amount of a few dollars. Is this not right? Is it not universal?

jfm2123
Posts: 9
Joined: Wed Feb 24, 2016 9:00 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by jfm2123 » Thu Mar 01, 2018 11:22 am

There is one positive to this Life Insurance imputed income situation. Since it is reported on a W-2 line 1 as wages, tips and other compensation, you can contribute that same amount as reported on line 1 to a ROTH IRA even if you have no other "working income."

User avatar
samsoes
Posts: 704
Joined: Tue Mar 05, 2013 9:12 am
Location: Northeast Rat Race

Re: "FREE" Employer Group Life - Really Costs You !

Post by samsoes » Thu Mar 01, 2018 11:32 am

28fe6 wrote:
Thu Mar 01, 2018 2:35 am
There is a line on my paystub that is called "gtl" and I thought that it was grossing me up for the taxes on these benefits. It's a positive amount of a few dollars. Is this not right? Is it not universal?
GTL = Group Term Life. Having your taxable pay grossed-up bu this amount is imputed income. That's the subject of discussion in this thread.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

Valuethinker
Posts: 34529
Joined: Fri May 11, 2007 11:07 am

Re: "FREE" Employer Group Life - Really Costs You !

Post by Valuethinker » Thu Mar 01, 2018 11:53 am

SanityCheck wrote:
Tue Feb 27, 2018 11:49 am
niceguy7376 wrote:
Tue Feb 27, 2018 11:38 am
OP,
For the amount of coverage you are receiving, what would be the premiums from the same insurance company if you ask for quote individually?

Would it be the $2100 annual premium or less or more?
As I mentioned before....the "fake premium" number added back to your gross is based on an IRS TABLE...not reality of the underlying employer cost. The numbers seem high based on this table.....it looks like I could get a term life policy on the street for a quarter of that $2100 (for the same coverage level)
That is presumably because you are insurable?

At 59, I would guess (without scarfing around actuarial tables) that something like 1/4 is uninsurable (or only so at an uneconomic premium) due to preexisting condition (previous cancer, AIDS etc.) or general health.

The reason employers offer this benefit is:

- it's tax efficient for most employees (even if not above a certain age, potentially)

- the employees can exploit risk pooling to get a much lower rate. Life insurance shows adverse selection, life insurees have lower expectancies than the population as a whole. Group life insurance avoids that. In the case where it does not (US military roles, perhaps PD & FD & other First Responders) there usually is an element of subsidy

- even in this very transactional era of worker-employer relations, employers know that it is bad for morale and commitment of employees to have situations where widowed spouses and dependents are left with nothing in the even of an unforeseen death. And there are funeral expenses etc. to be covered. It can thus be an attractant for, and retention for, employees

You can negotiate with your employer if you don't have a financial need for this benefit? Normally I would say to most just run with it- -but I understand why it may be spectacularly bad value for you at your age and presumed under-writable insurance status?

DIFAR31
Posts: 78
Joined: Mon Jan 01, 2018 5:51 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by DIFAR31 » Thu Mar 01, 2018 5:18 pm

Clever_Username wrote:
Wed Feb 28, 2018 1:18 pm
Wagnerjb wrote:
Wed Feb 28, 2018 12:49 pm
Clever_Username wrote:
Tue Feb 27, 2018 12:37 pm
sport wrote:
Tue Feb 27, 2018 11:40 am
If someone does not need the insurance, any cost is too much. My father used to tell me "don't buy something you don't need just because it's cheap".
Agreed. Where do I check for this on this year's W2? The only boxes I don't know the meaning of is 12a and 12b, unless I'm missing something.
The amounts of excess life insurance are reported in box 12 with a "C" designation.

Best wishes.


Thank you! The good news for me is that box is empty for 2017.
Not necessarily in box 12c... the GTL imputed income can be in any of the box 12 spaces with a code of "C"... if you don't know what box 12a and 12b are telling you, look at the code displayed there and translate using the instructions on the back of the W-2.

libralibra
Posts: 142
Joined: Sat Jul 30, 2011 2:01 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by libralibra » Thu Mar 01, 2018 5:43 pm

samsoes wrote:
Thu Mar 01, 2018 11:32 am
28fe6 wrote:
Thu Mar 01, 2018 2:35 am
There is a line on my paystub that is called "gtl" and I thought that it was grossing me up for the taxes on these benefits. It's a positive amount of a few dollars. Is this not right? Is it not universal?
GTL = Group Term Life. Having your taxable pay grossed-up bu this amount is imputed income. That's the subject of discussion in this thread.
This terminology is not quite accurate. When you are "grossed up" you are given cash on top of the award to roughly offset the tax on both the imputed income and the free cash. Ex:

You win a laptop in the company raffle. They value it at $1000. They use a tax rate of 33% and gross you up with $500 cash. On your paycheck stub, you see income of $1000 for the laptop, $500 gross-up cash, and then approx $500 taken out for taxes (actual amount depends on your W4 setting).

Anyway, I've never had a company "gross up" my GTL benefit. (In the example above, if no gross-up, then you effectively pay $333 for the laptop in additional income tax.)

P&C actuary
Posts: 109
Joined: Fri Jul 19, 2013 12:27 pm

Re: "FREE" Employer Group Life - Really Costs You !

Post by P&C actuary » Thu Mar 01, 2018 5:48 pm

SanityCheck wrote:
Tue Feb 27, 2018 11:49 am
niceguy7376 wrote:
Tue Feb 27, 2018 11:38 am
OP,
For the amount of coverage you are receiving, what would be the premiums from the same insurance company if you ask for quote individually?

Would it be the $2100 annual premium or less or more?
As I mentioned before....the "fake premium" number added back to your gross is based on an IRS TABLE...not reality of the underlying employer cost. The numbers seem high based on this table.....it looks like I could get a term life policy on the street for a quarter of that $2100 (for the same coverage level)
The comparison should be between the tax on $2100 and the street price for term on the amount above $50k. For me, the additional tax was less than what I could get term for on the amount above 50k.

Post Reply