Leaving a job: what happens to your group life coverage

Group life is the benefit people forget they have until they are leaving. It is usually a multiple of salary, often paid in full by the employer, and it shows up on the stub not as a deduction but as a small taxable line that never reaches your bank account.

Why there is an "imputed income" line

Under section 79 of the Internal Revenue Code, the cost of the first $50,000 of employer-provided group-term life coverage is tax-free to you. Coverage above $50,000 is not. The value of the excess, calculated from an IRS table rather than from what the employer actually pays, is added to your taxable wages. That added amount is imputed income.

Payroll handles it in two lines: one adds the value to taxable wages, the other subtracts it again because you never received it as cash. The net effect is that the value is taxed but not paid.

Working the number

IRS Publication 15-B, Table 2-2, gives a monthly cost per $1,000 of coverage by age band. For ages 45 through 49 the figure is $0.15. Here is our example, step by step:

1. Salary: $75,000. Coverage: 2× salary = $150,000.
2. Excess over $50,000: $150,000 − $50,000 = $100,000.
3. Units of $1,000: 100.
4. Monthly imputed income: 100 × $0.15 = $15.00.
5. Annual: $15.00 × 12 = $180.00.
6. Per biweekly paycheck: $180.00 ÷ 26 = $6.92.

Tax on that $6.92:

Tax	Rate	Per paycheck
Social Security	6.2%	$0.43
Medicare	1.45%	$0.10
Federal withholding (assumed)	12%	$0.83
Total		$1.36

The 12% is an assumption for the example; actual withholding follows your W-4 and the IRS Publication 15-T tables. If you pay part of the premium yourself with after-tax dollars, that payment reduces the imputed amount. The age bands step up; at 50 through 54 the table figure is $0.23, so the same coverage produces more imputed income.

When you leave, both GTL lines stop and the $1.36 stays in your pay. That is the whole net effect on the stub. The bigger question is the coverage itself.

What ends, and when

Group-term life coverage generally ends on your last day of employment or the end of that month, depending on the policy. The certificate of coverage, available from HR or the insurer's portal, states the date. Any supplemental life you bought through payroll ends on the same terms unless you act.

The two ways to keep coverage

Most group life policies offer one or both of these. They are different products with different prices.

Conversion

You convert some or all of the group coverage into an individual permanent policy with the same insurer, usually without having to answer health questions. The premium is set at your current age for an individual permanent policy, so it is typically much higher than what the group coverage cost. The window to apply is set by the policy and state law, and is often 31 days after coverage ends. Check yours.

Portability

Some policies let you continue term coverage at group-based rates after leaving, billed to you directly. Portability may apply only to supplemental (employee-paid) coverage rather than the basic employer-paid amount, and it may require you to be in good health at the time you leave. It also has a deadline, usually stated alongside the conversion one.

A short decision order

1. Find the certificate for each life policy on your enrollment: basic, supplemental, spouse, child.
2. Write down the end date and both deadlines. The window runs whether or not you have received a letter.
3. Price what you would need. A new job may offer group life again, but often only at a lower multiple, and possibly after a waiting period.
4. Decide before the window closes. Conversion is a way to keep some coverage when health questions would be a problem; it is rarely the cheapest coverage otherwise.

What to check on the last stub

• The GTL imputed line appears on the final paycheck if you were covered for that period.
• Year-to-date imputed income matches the months you were covered.
• Supplemental life deductions stop after the last covered period. If one keeps running on a final check after coverage has ended, ask payroll; see payroll errors and claw-backs.

Related lines: voluntary benefits at work, coverage after a job loss, and severance: the order to do things.