Employer life insurance. (Group life insurance)
An employer usually provides 2 types of life insurance coverages.
First one is where the employer pays 100% of the premiums. For example, Vijay makes $100k in salary and employer is going to cover Vijay for 2X of salary in life insurance. So if Vijay passes away, the family will get $200k in death benefits. Here is the problem. According to IRC section 79 provides an exclusion (tax-free) for the first $50,000 of group-term life insurance coverage paid by the employer. In this example, the remaining $150k is going to be taxed as ordinary income to the beneficiaries.
Most of you guys have an option to purchase additional group life insurance through your employer in increments of 3x or 4x or 5x your salary. You will pay premiums for this coverage with after-tax dollars and employer will deduct it out of your payroll. This death benefit is 100% income tax-free to your beneficiaries. Premiums for this term will increase every 5 years, so if you are 36 years old, you will an increase at age 40, 45, 50, 55, 60 and 65. Once you leave your employer, you are no longer part of that group, and your premiums will increase immediately after termination of your employment.