Many employers provide free life insurance to employees as part of their benefits package. Unfortunately for the employee, the premium paid by the company is a taxable benefit. In some cases the taxes owing can actually be more than what it would cost to buy the life insurance.
I encountered this situation years ago when the tax rules changed making company-paid life insurance a taxable benefit. My company paid $1.68 per year for each $1000 of life insurance coverage. This amount had to be added to my income.
At the prevailing marginal income tax rates, I paid taxes of $0.83 per $1000 of coverage. Perversely, I could buy life insurance cheaper than this. Although the cost wasn’t huge, I tried to decline the company life insurance on principle. A confused human resources person checked into it for me and came back saying that I couldn’t decline the insurance.
At the time I tried to explain the situation to a some colleagues, but it became obvious that few believed that what I was saying could be true and none cared. So, my little revolution was stopped in its tracks. I’d be interested to hear from anyone who tries this comparison for his own situation. Do you pay more in taxes for free group life insurance than it would cost to pay the premium on your individual plan?