Impact of Insurers’ Rate Changes

Even a very small rate change can cause an employee-pay-all policy to become employer-carried. An employer that wants to provide an employee pay-all policy without that policy becoming employer carried should review the rates under that policy against Table I each time the policy’s rates change and each time Table I changes.

Same facts as in the previous example except that the rate under the Excess Policy in 2011 for those under age 25 is $0.02 lower than the rate charged in 2011.
Result under the Basic Policy: Same as noted in the previous example.
Result under the Excess Policy: One of the Excess Policy’s 2011 rates is now lower than the Table I rate, while the other rates remain above the Table I rates, causing a straddle relative to the
Table I rates. Therefore, ABC is deemed to ‘carry’ the Excess Policy for purposes of Section 79 during 2011. ABC must impute income to Ms. X during 2011 as described in the first example above.

Calculating Group Term Life Insurance Imputed Income

1. Determine the amount of Basic Life Coverage provided by the employer
2. Add any supplemental, optional or voluntary life coverage which is paid for with pre-tax contribution
3. Subtract $50,000
4. Divide the balance by 1,000
5. Multiply the result in #4 above by the IRS Table I rate, based on age at the end of the calendar year
6. Multiply the total by the number of months covered during the year

Imputed income can be offset by contributions made by employees for all or a portion of group term life insurance coverage.


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