Group life insurance is a policy the business buys for its employees, usually a flat amount like $25,000 or $50,000 or a multiple of salary, often bundled with AD&D. It is one of the cheapest benefits you can offer because the premium is priced per $1,000 of coverage across the whole group, and most small-group plans issue a base amount with no health questions. The first $50,000 of employer-paid coverage is tax-free to employees, and the premium is deductible to the business.
Want the dollar side first? See what group life costs a small business →
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
Why small teams add group life
For a business with 2 to 25 employees, group life is usually the second benefit after health insurance, and the easiest one to justify. Most employees have little or no life insurance of their own, the cost per person is small, and a flat benefit that nobody has to qualify for medically means employees with health issues get coverage they might not find on their own.
It is also simple to administer. The carrier bills one premium, enrollment rides along with your health plan, and the coverage stays in force as long as the employee works for you (with options to convert or carry it when they leave, depending on the plan).
Common plan designs
| Design | How it works | Good fit for |
|---|---|---|
| Flat amount | Every eligible employee gets the same benefit, such as $25,000 or $50,000 | Teams with similar pay, simple budgeting |
| Salary multiple | 1 or 2 times annual salary, usually with a maximum | Teams with a wide pay range |
| Class-based | Different amounts for defined classes (for example owners and managers vs staff), within carrier and tax rules | Businesses that want richer coverage for leadership |
| Basic plus voluntary | Employer pays a base amount, employees can buy more through payroll | Owners who want choice without the cost |
Most small-group plans include accidental death and dismemberment (AD&D) at the same amount. Dependent life (a small benefit on a spouse and children) is a common add-on.
What it costs
Group life is priced as a rate per $1,000 of coverage per month, applied to the group's total coverage (called volume). The rate depends mostly on the ages of your employees, plus the carrier and plan design. The math is easy to check:
10 employees with $50,000 each is $500,000 of volume. At an illustrative rate of $0.15 per $1,000 per month, the premium is 500 times $0.15, or $75 a month for the whole team. Your quoted rate will differ with your team's ages and the carrier.
Our group life cost guide covers what moves the rate and how participation rules work for small groups.
The $50,000 rule
Under Section 79, the cost of the first $50,000 of employer-paid group term life is excluded from an employee's income. Coverage above $50,000 creates imputed income, valued using the IRS uniform premium rates (Table I) rather than what you actually pay, and it shows up on the W-2. For most employees the amount is small (for example, about $276 a year for a 52-year-old with $150,000 of coverage). Owners of S corporations who hold more than 2% are treated differently and do not get the exclusion. See imputed income on group term life and run the numbers in the imputed income calculator.
Groups under 10 employees: for life insurance to count as group-term life under Section 79 when fewer than 10 full-time employees are covered, IRS Publication 15-B and the regulations generally require that it go to all full-time employees (or all who pass any evidence of insurability), that amounts be a uniform percentage of pay or follow the carrier's brackets within IRS limits, and that any evidence of insurability be limited to an employee-completed medical questionnaire with no exam. Small-group carrier plans are usually built to fit these rules, but confirm the design with the carrier and your CPA.
Pairing group life with health
Many small-group health carriers will quote life, dental and vision together, and some give a small discount or easier participation rules when the lines are bundled. If your team uses an ICHRA for health instead of a group plan, you can still offer group life separately; see ICHRA and group life. When we build your health quote, we can include group life so you see the whole benefit package and its total cost on one page.
Owners often want more coverage for themselves than a group plan provides. That is where individual coverage and the strategies in our business life insurance guide come in.
Every guide in this series
Setting up group life
Group Life Insurance Cost for 2 to 25 Employees
Rate per $1,000, what moves it, participation rules and guaranteed issue.
Voluntary Life: Coverage at No Employer Cost
Guaranteed issue at enrollment, family coverage, portability and payroll deduction.
Can You Offer Group Life With an ICHRA?
ICHRAs handle health only, so life and other benefits stay on the table.
Taxes on group life
Group Term Life Over $50,000: Imputed Income
Table I rates, W-2 box 12 code C, FICA and the S corp owner exception.
Section 79 Plans vs Basic Group Term
Permanent benefits in a group plan, how they are taxed, and the red flags.
Group Term Life Imputed Income Calculator
IRS rate math for an ordinary employee's coverage over $50,000.
Frequently asked questions
Is group life insurance required for small businesses?
No. No federal or state law requires a small employer to offer group life insurance. It is a voluntary benefit, which is why it is a cheap way to stand out when hiring.
Do employees have to answer health questions?
Usually not for the base amount. Most small-group plans have a guaranteed issue amount that every eligible employee gets without health questions when they enroll on time. Amounts above that, and late enrollees, typically need a short health form called evidence of insurability.
Can owners be covered by the group life plan?
Usually yes, if they work in the business and meet the eligibility rules. Owners of S corporations with more than 2% ownership can be covered, but the full cost of their coverage is included in their wages instead of getting the $50,000 exclusion.
What happens to group life coverage when an employee leaves?
The group coverage ends, but most plans offer a conversion right to an individual policy without health questions, and many offer portability so the employee can keep group-rate term coverage for a while. The deadlines are short, often 31 days, so the employee should act quickly.
Get a group life quote for your team
Tell us how many employees you have and where the business is. Erik will follow up to talk through basic group life (and voluntary life if you want it), and quote it alongside your health plan if you have one.
- Erik reviews your team size and where the business is.
- He prices basic group life, and voluntary life if you want it, with your health plan if you have one.
- You review the options on a call. He collects employee ages and ZIP codes when it is time to quote.
Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.