Employers generally may deduct premiums paid to provide group-term life insurance coverage for employees, provided the employer is not the beneficiary.
The death proceeds of group-term life insurance are paid to the designated beneficiary, and are generally exempt from federal income tax.
Federal tax law (IRC Section 79) provides a major incentive for this employee benefit by allowing the cost of the first $50,000 of employer-paid group-term life insurance coverage to be excluded from the gross income of covered employees (including retired employees), even though such premiums are currently deductible by the employer. The employer may be a corporation, limited liability company, partnership or sole proprietorship. However, sole proprietors, partners, and S Corporation shareholder-employees who own more than 2% of the stock are not eligible employees for purposes of IRC Section 79, so their group term coverage is not excludable from gross income.