Life Insurance Imputed Income
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Life insurance is a fundamental part of every good financial plan. Having a sound plan helps you take a full control over your money and your financial future, without any surprises.
There are many types of life insurance, and people are usually more familiar with life insurance for individuals. However, if you are an employer or an employee, the most important policy is a group life insurance policy or imputed income life insurance.
What is Life Insurance Imputed Income?
Imputed income is one of the coverage plans that are offered to a group of people, members or employees, and it is generally cheaper than an individual policy.
Unlike individual policy, group life insurance covers an entire group of people with a single contract, covering the employees or members of the group.
Imputed income life insurance is a life insurance plan that offers tax-free premiums to employees. The thing is that the cost of the first $50,000 of group life insurance is tax-free and deductible for employers that bear the premium expense. The cost of any additional coverage, coverage that exceeds $50,000, is a taxable value and it’s called imputed income.
Imputed income is a certain amount of money established by the IRS, and it is determined by the age and schedule of the employee. It is the dollar value put on the amount of group life insurance by the Internal Revenue Service (IRS) itself.
If a company is providing basic life insurance to the employees, it is required to pay income taxes on the value under current tax laws. Imputed income is usually added to the gross wages and is included on the form W-2 at the end of the year.
How Imputed Income Works?
Imputed income is offered by employers as a piece of a larger employer or membership benefits package. It is usually purchased through a provider on a wholesale basis, which is why the policy costs much less than if it was purchased as an individual policy.
With the imputed income, the benefit goes to the beneficiaries if the covered individual (employee) dies while the policy is still valid.
The policy owner, in this case, is an employer or a labor organization. That means that the employer or organization that purchased a group life insurance policy for the workers or members will keep the master contract for themselves.
However, each individual will receive a certificate of creditable coverage, which is basically a proof of having life insurance. This certificate is important in case of individuals leaving the company or if the organization itself decides to terminate their coverage for some reason. This paper is usually provided to a subsequent insurance company in case of such events.
Good thing is that employees who receive coverage may not have to pay anything out of their pockets, as premium payment can be deducted from their paycheck.
If you want to calculate imputed income by yourself, all you need is a premium table published by the IRS, the basic formula for the imputed income and calculator, or you can always search around for free imputed income calculators online.