Employer provided life insurance....

[Rukh O'Rorke]

ok - I have another life insurance question...

I have employer life insurance of 278k payment (and I think there is a plus of an additional 2 years ADD benefit - max of 450k though...). For free! I was always thinking this was great!

But it's taxable, and the benefit costs 45 and change per pay period and added in to taxable income. I was thinking 45/month which would be great - and in line with what I think would be the cost of buying it - but realized after signing up for it for 2019 that it is 45 per pay period. I am 55, but pretty low risk. never a smoker, low blood pressure, father died at 96, mother currently living independently at 96. Aunts and uncles on both sides of the family lived to 90's. Googling around - a 250 benefit for preferred plus at my age is 38/month - so I am right that this is a really high premium.

So - between fed and IL taxes, I think this is costing me over $350 a year! So while its not a bad deal - (I think the price tag is bad! but paying just the tax/cost to me is rather reasonable for the policy benefits imo) I would not have sought out additional life insurance. 

I have a 50k policy that would cover final expenses and pay the bills for a while while sorting out the estate. I have 600k - 700k or so in retirements to leave my progeny. Maybe 250k equity in the house. Unlike Susana, my kids are not yet well established - but are on their way more or less.
One graduate, one to gradate this year. If I got hit by a bus, it'd be great to have an extra 278 (450K?) for them.

But - not sure it is really necessary.

But if I got dismembered rather than killed by the bus 

[Deleted]

I did the same calculation in my last job.  Employer-provided life insurance is a relatively cheap benefit and I always got multiples of my salary, but at age 61, with DS launched and enough savings that DH would be OK financially if I predeceased him, I decided I didn't want to pay the taxes on the imputed income (anything the employer chips in for life insurance over $50K is taxable to the employee).  Unfortunately, I had to wait till Open Enrollment to drop it.

I quit before that.  

[azucena]

Is it a term policy?  If it's not, that's part of what is driving up the expense, anything besides term has a higher premium.

For comparison, I'm 40 and my company pays $400/yr for a guaranteed universal life policy with a DB of $500k.  I figure it costs me about $120 in taxes.

[Rukh O'Rorke]

Nov 26, 2019 11:52:39 GMT -5 azucena said:

Is it a term policy?  If it's not, that's part of what is driving up the expense, anything besides term has a higher premium.

For comparison, I'm 40 and my company pays $400/yr for a guaranteed universal life policy with a DB of $500k.  I figure it costs me about $120 in taxes.

it is term.

I think the high cost is to cover any/everyone - tobacco users, diabetes, etc. whereas if I were to buy individually - I am preferred plus.

I keep vacillating on this - to take or not take. If only it were the price it would cost me individually - or not taxed - it would be a good benefit.

[azucena]

Mine is a group policy too so facing the same issues of covering everyone. I probably benefit from being part of a group of 2000 employees where the coverage is pretty much always taken so less anti-selection.

Do you have an individual policy? You can use term4sale dot com to price out what term coverage might look like for you. Last time I checked, I could get quotes without providing contact info that would blow up my email.

[Deleted]

So, my employer provides 2X annual income in life insurance for free (80K), but the imputed income is only $3/paycheck, so it's maybe costing me $9/year.  $45/paycheck seems really steep. 

[Deleted]

We had this.  It was 2.5 times our salary; anything over $50,000 is taxable.  They used to add it to our salary for tax purposes (called "fringe benefits") one time a year (August), which was terrible!  They finally started adding it monthly, which lessened the tax burden.

The thing was that it wasn't optional.  You couldn't say that you could find cheaper insurance elsewhere so please take me off.  And it is hard to really compare whether it is cheaper or not because you aren't paying $45 a paycheck for it.  You are being taxed on $45 a paycheck.  And I am sure it is a valued perk for those who are otherwise uninsurable which explains both why it is so high and why it isn't optional.

The imputed value of my fringe benefits was $238 a month.  I don't know what all that included since we got "free" dental and "free" longterm disability.  Were those taxable as well? But, again, I was only taxed on the $238; I didn't actually pay $238.

I did notice a decided increase when I hit 50.

[Rukh O'Rorke]

Dec 2, 2019 16:45:56 GMT -5 @bamafan1954 said:

And I am sure it is a valued perk for those who are otherwise uninsurable 

oh - that is a good point, not just those with higher premium tiers - but those who couldn't get it all. That explains the high cost. 

[jeffreymo]

Like others have mentioned, the cost to the employee is the tax on the calculated fringe benefit and it is subject to FICA taxes. So if someone is in the 25% bracket it would be 32.65% depending on where someone is with their FICA limits. I think some states tax the benefit too.

Also in addition to lumping the healthy and the unhealthy into the same group, the Group policies are based on an age range, which would be different then someone going out and buying their own policy.

[gs11rmb]

So I'm feeling really dumb right now.  Am I being taxed on company benefits?  I also get two times my salary as 'free' life insurance.

[Deleted]

Dec 3, 2019 7:53:26 GMT -5 gs11rmb said:

So I'm feeling really dumb right now.  Am I being taxed on company benefits?  I also get two times my salary as 'free' life insurance.

Not ALL company benefits.  For life insurance, though, they calculate what the premium would be on anything over $50K paid by the employer and that's taxable income to you.

And don't feel dumb.  The tax code is so complicated that my brother, who is about to retire as of 1/1, was making over $1 million/year as a tax partner in a major firm.

[gs11rmb]

I checked my paystub and realized that I've 'earned' $139.68 YTD for Group Term Life.  That works out at $5.82 per pay period.  Not bad.

[azucena]

Dec 3, 2019 7:53:26 GMT -5 gs11rmb said:

So I'm feeling really dumb right now.  Am I being taxed on company benefits?  I also get two times my salary as 'free' life insurance.

I also feel like it was a fairly recent change to the tax code a handful of years ago. Prior to that I don't remember seeing it split out on my paycheck.

[jeffreymo]

Dec 3, 2019 9:22:34 GMT -5 gs11rmb said:

I checked my paystub and realized that I've 'earned' $139.68 YTD for Group Term Life.  That works out at $5.82 per pay period.  Not bad.

Right, and that is just recorded as a taxable earnings so you’re not actually paying $5.82 but instead you will pay whatever tax is calculated on that $5.82 so your “cost” is much less than $139.68 for the year.

[Deleted]

Dec 3, 2019 11:56:38 GMT -5 azucena said:

Dec 3, 2019 7:53:26 GMT -5 gs11rmb said:

So I'm feeling really dumb right now.  Am I being taxed on company benefits?  I also get two times my salary as 'free' life insurance.

I also feel like it was a fairly recent change to the tax code a handful of years ago. Prior to that I don't remember seeing it split out on my paycheck.

It's not particularly recent.  I remember it going up when I turned 50.  So that's 15 years ago.  

[bean29]

My DH wanted me to drop the group life I opted into for him, but I was hesitating to do it. It was something like $780/yr for $100,000. I was thinking it was $200,000 and I went to the site you listed, and got a quote for $200,000 of insurance - which was about what I pay for $100,000 of insurance.

I went ahead an dropped it. We do have a whole life policy of $100,000 or so, but I worry about that, b/c my mortgage balance is higher than that.  I don't think he will drop dead in the next year though, and he pointed out that if he dies, I will get 1.5 million for his business.  I don't quite trust that, always worry about the company going out of business.

I also was considering opting in the LTD, but the amounts just seemed so high- I think my money will be better spent invested in the stock market. 

[Deleted]

I would add if you were counting on life insurance to support your loved ones if something happens you should have enough coverage outside your employer to the amount you think you would need.

As I understand it the employer life insurance is terminated either the day you separate from a company or if they offer severance benefits it may be continued for a period of time.  You wouldn't want to get laid off and then have your family needing the benefit while you are in between jobs.

At this point in my life I wish my company would just give me the money they are paying for my free insurance.

[Deleted]

Dec 3, 2019 16:14:26 GMT -5 @aj said:

I would add if you were counting on life insurance to support your loved ones if something happens you should have enough coverage outside your employer to the amount you think you would need.

As I understand it the employer life insurance is terminated either the day you separate from a company or if they offer severance benefits it may be continued for a period of time.  You wouldn't want to get laid off and then have your family needing the benefit while you are in between jobs.

At this point in my life I wish my company would just give me the money they are paying for my free insurance.

What scares me more is what I've seen happen here.  Someone gets a terminal illness or bad injury and after so many months on STD the company terminates them so they can go on LTD but the life insurance is terminated too, (we can't continue to carry it, not sure if that is true everywhere).  Now you're without a job, maybe racking up lots of medical bills, and facing death with no insurance and no ability to get another policy anywhere else anymore.    

[Deleted]

Dec 3, 2019 16:07:24 GMT -5 bean29 said:

I also was considering opting in the LTD, but the amounts just seemed so high- I think my money will be better spent invested in the stock market. 

Disability insurance seems more important to me than life insurance (or at least as important) since you're a lot more likely to become disabled during your working years for a stretch than die.  Our employer covers the cost of STD and LTD though so I have no idea what the rates are. 

[Deleted]

Dec 3, 2019 16:58:41 GMT -5 minnesotapaintlady said:

Dec 3, 2019 16:14:26 GMT -5 @aj said:

I would add if you were counting on life insurance to support your loved ones if something happens you should have enough coverage outside your employer to the amount you think you would need.

As I understand it the employer life insurance is terminated either the day you separate from a company or if they offer severance benefits it may be continued for a period of time.  You wouldn't want to get laid off and then have your family needing the benefit while you are in between jobs.

At this point in my life I wish my company would just give me the money they are paying for my free insurance.

What scares me more is what I've seen happen here.  Someone gets a terminal illness or bad injury and after so many months on STD the company terminates them so they can go on LTD but the life insurance is terminated too, (we can't continue to carry it, not sure if that is true everywhere).  Now you're without a job, maybe racking up lots of medical bills, and facing death with no insurance and no ability to get another policy anywhere else anymore.    

Actually, if you are terminated, COBRA will let you extend that life insurance for 18 months if you have been paying for it.  But I imagine that it is expensive.  If your employer is paying for it, I am not sure.  However, my employer provided "free" dental insurance, and I was able to extend it under Cobra.

However, we are conflating two different types of employee insurance here.  There is "free" insurance provided by the company.  I honestly don't think you can't opt out of it despite the tax consequences.  Otherwise, all the young and healthy people would, leaving only the old and unhealthy people.  It wasn't an option at my employer to drop anything free.

Then there is group health insurance provided by your company.  That has a premium that is deducted from your paycheck.  That you can definitely drop.  This can definitely be extended through COBRA.  My ex screwed up and paid for me to be insured for 5 years after I divorced.  That wasn't actually allowed so they refunded his premium and offered me COBRA five years later.  Lol.  At that point, I was over 50 so the premiums were too high.

[Deleted]

Dec 3, 2019 20:15:44 GMT -5 @bamafan1954 said:

Dec 3, 2019 16:58:41 GMT -5 minnesotapaintlady said:

What scares me more is what I've seen happen here.  Someone gets a terminal illness or bad injury and after so many months on STD the company terminates them so they can go on LTD but the life insurance is terminated too, (we can't continue to carry it, not sure if that is true everywhere).  Now you're without a job, maybe racking up lots of medical bills, and facing death with no insurance and no ability to get another policy anywhere else anymore.    

Actually, if you are terminated, COBRA will let you extend that life insurance for 18 months if you have been paying for it.  But I imagine that it is expensive.  If your employer is paying for it, I am not sure.  However, my employer provided "free" dental insurance, and I was able to extend it under Cobra.

However, we are conflating two different types of employee insurance here.  There is "free" insurance provided by the company.  I honestly don't think you can't opt out of it despite the tax consequences.  Otherwise, all the young and healthy people would, leaving only the old and unhealthy people.  It wasn't an option at my employer to drop anything free.

Then there is group health insurance provided by your company.  That has a premium that is deducted from your paycheck.  That you can definitely drop.  This can definitely be extended through COBRA.  My ex screwed up and paid for me to be insured for 5 years after I divorced.  That wasn't actually allowed so they refunded his premium and offered me COBRA five years later.  Lol.  At that point, I was over 50 so the premiums were too high.

COBRA does not cover life or disability insurance it is just for healthcare.  If your health insurance included dental and vision it could be extended under COBRA, but if not it's not covered either.   Employers can choose to continue, but they're not required to.  Ours most certainly does not allow anything but medical.  

[zibazinski]

I’d keep it until you’re no longer responsible for any dependents. Or look for another comparable term policy , a short term 5-10 year max should be reasonable.

[Rukh O'Rorke]

Dec 3, 2019 16:07:24 GMT -5 bean29 said:

My DH wanted me to drop the group life I opted into for him, but I was hesitating to do it. It was something like $780/yr for $100,000. I was thinking it was $200,000 and I went to the site you listed, and got a quote for $200,000 of insurance - which was about what I pay for $100,000 of insurance.

I went ahead an dropped it. We do have a whole life policy of $100,000 or so, but I worry about that, b/c my mortgage balance is higher than that.  I don't think he will drop dead in the next year though, and he pointed out that if he dies, I will get 1.5 million for his business.  I don't quite trust that, always worry about the company going out of business.

I also was considering opting in the LTD, but the amounts just seemed so high- I think my money will be better spent invested in the stock market. 

It could also take quite some time to sell or luquidate to get usable assets.

[Rukh O'Rorke]

Dec 4, 2019 6:29:59 GMT -5 zibazinski said:

I’d keep it until you’re no longer responsible for any dependents. Or look for another comparable term policy , a short term 5-10 year max should be reasonable.

Yeah, I think you're right. I'll keep for 2020 and plan to decline for 2021.

Maybe replace but maybe not...see where we all are.

[bean29]

Dec 4, 2019 11:40:18 GMT -5 Rukh O'Rorke said:

Dec 3, 2019 16:07:24 GMT -5 bean29 said:

My DH wanted me to drop the group life I opted into for him, but I was hesitating to do it. It was something like $780/yr for $100,000. I was thinking it was $200,000 and I went to the site you listed, and got a quote for $200,000 of insurance - which was about what I pay for $100,000 of insurance.

I went ahead an dropped it. We do have a whole life policy of $100,000 or so, but I worry about that, b/c my mortgage balance is higher than that.  I don't think he will drop dead in the next year though, and he pointed out that if he dies, I will get 1.5 million for his business.  I don't quite trust that, always worry about the company going out of business.

I also was considering opting in the LTD, but the amounts just seemed so high- I think my money will be better spent invested in the stock market. 

It could also take quite some time to sell or luquidate to get usable assets.

Meh, the business generates $30,000+/month, so I will have income in the meantime. The concern is that without him to run it I might need to pay someone to run it. I do have the licenses to run it as does DS and DD for that matter. DS works in the business, but he is not DH - DH thinks I should just sell it after he is gone.  I am just as capable of running it as DH, the problem is his client base is Spanish speaking and I don't speak Spanish.

I was aware that they say disability is more important than life, but as I said, since he owns the business, it keeps generating revenue and can be sold back to the company - they put the $$ value on it. I don't remember what the cost of the disability was but it was like $170/month with a 3 year elimination period. I just thought that was a lot of $$ for that long of a waiting period.