Group Life Insurance Explained

Current as of October 2026. Government programs, tax rules and prices change. Check the official sources listed at the end of this page before making a decision, and confirm details with a licensed advisor.

What group life insurance is

Group life insurance pays a lump sum to an employee's named beneficiary if the employee dies while covered. It sits inside the same plan as the dental, drug and paramedical benefits most people think of first, and it is usually included automatically for every eligible employee rather than chosen one by one.

Most employer plans use group term life: pure insurance protection with no savings or investment component. Coverage lasts while the employee stays eligible and premiums are paid, and it ends under the conditions set out in the contract. The Canada Revenue Agency has its own rules for how employer-paid premiums on this kind of coverage are taxed, covered below.

For a small business, this matters because it gives every person on the team a baseline of protection for their family, often without the medical questions an individual policy would involve up to a certain amount. For a broader look at how life and income protection fit together, see group life and disability insurance.

Flat amounts vs. a multiple of salary

Every plan has a formula for how much each employee is insured for. The two common approaches are simple to describe, and each suits different workplaces.

Some plans also add a reduction schedule at older ages or a termination age in the contract, so ask how the amount changes over time, not just what it is on day one.

• Flat amount: every employee in a class has the same coverage. It is easy to explain and budget for, and common in smaller teams or where pay is fairly even.
• Multiple of earnings: coverage is set as a multiple of annual salary, so it grows with pay. The contract defines what "earnings" means (for example, whether commissions or bonuses count) and usually caps the amount at a plan maximum.
• Classes: employers can set different formulas for different groups, such as owners and managers vs. hourly staff, as long as the classes are defined clearly in the contract.
• Non-evidence maximum: amounts above a limit set by the insurer may require the employee to provide medical evidence before the extra coverage is approved. The limit varies by insurer and group size.

Optional, dependent and AD&D coverage

Basic life is often paired with related coverage. Dependent life pays a smaller amount if an employee's spouse or child dies. Optional life lets employees buy extra coverage for themselves or a spouse, usually paying the premium through payroll and usually with medical evidence. Accidental death and dismemberment (AD&D) pays only for losses caused by an accident as defined in the policy, so it is an add-on, not a replacement for life insurance.

Sun Life notes that employer-paid premiums for group life, dependant life and accidental death insurance are all taxable benefits to the employee, so the tax point below applies to each of these, not just basic life. If you also want to protect employees while they are alive but unable to work, compare long-term disability insurance and group critical illness coverage.

Tax: employer-paid premiums are a taxable benefit

This is the part that surprises employees on their first T4. As of October 2026, the CRA treats premiums an employer pays for group term life insurance as a taxable employment benefit. The value of that coverage is added to the employee's income, even though the employee never sees it as cash.

As of October 2026, CRA guidance says that for group term life premiums paid regularly that do not depend on age or gender, the taxable benefit includes the premiums, applicable sales and excise taxes (not GST/HST), and provincial insurance levies, minus anything the employee reimburses. Because it is a non-cash benefit, the employer withholds income tax and CPP contributions on it but not EI, and reports it under code 40 on the T4 slip (former or retired employees are reported on a T4A). The CRA uses a different calculation when premiums are not paid regularly or vary by age or gender.

In Ontario, as of October 2026, Retail Sales Tax at 8% applies to premiums paid under group insurance contracts. Employer-paid premiums are taxable based on where the employee works or is paid from, and this RST is part of what flows into the employee's taxable benefit. The dollar amount for one person is usually modest, but it is worth explaining at enrolment so nobody is caught off guard. The guide to how employee benefits are taxed in Ontario covers the other parts of the plan.

Conversion when an employee leaves

Group life coverage normally ends when employment ends or the employee is no longer eligible. Most group policies include a conversion privilege: the right to move some or all of the group amount to an individual policy with the same insurer, without proving good health.

The window is short. As of October 2026, both Canada Life and Desjardins state that conversion generally must be requested within 31 days after group coverage ends or is reduced, and that there is an age limit of around 65 (check the exact wording in your contract). Both note that conversion can be done without a medical exam or evidence of insurability. Individual premiums are based on the person's own age and the type of policy chosen, so they will differ from what the group plan cost.

For someone with a health condition that would make new coverage hard to get, conversion can be the only realistic way to keep life insurance in place. Employers should give departing employees the conversion information promptly, as part of the wider steps in benefits after termination. Former employees looking at health and dental options can read about coverage after leaving a group plan.

Practical tips for employers

A few habits keep group life working the way it should when a family actually needs it.

• Ask every employee to name a beneficiary at enrolment and remind them to update it after a marriage, separation or new baby.
• Keep salary records current with the insurer if your formula is a multiple of earnings, so coverage keeps pace with raises.
• Track evidence of insurability requests so employees above the non-evidence limit actually get the extra coverage approved.
• Explain the taxable benefit and the conversion window in plain language in your employee benefits booklet.
• Review the life formula at renewal along with the rest of the plan, since headcount and pay change over time.

Getting the design right

Choosing between a flat amount and a salary multiple, setting classes, and deciding whether to offer optional life all affect cost and fairness across your team. A licensed benefits advisor can explain the trade-offs, show how insurers set non-evidence limits for a group your size, and help you communicate the tax treatment clearly. When you are ready, get matched with a licensed benefits advisor through GroupBenefitPlans.ca. GroupBenefitPlans.ca is a referral service, so the advice and coverage come from the licensed professional and the insurer.

Common questions

Is group life insurance taxable in Canada?

As of October 2026, premiums an employer pays for group term life insurance are a taxable benefit to the employee, according to the CRA. The value is added to the employee's income, with income tax and CPP withheld (but not EI), and reported on the T4 under code 40.

How much group life insurance do employees usually get?

It depends on the plan. Some plans give every employee in a class the same flat amount, while others use a multiple of annual earnings up to a maximum. Amounts above the insurer's non-evidence limit may need medical approval.

Can I keep my group life insurance if I leave my job?

Group coverage usually ends when you leave, but many plans let you convert it to an individual policy without a medical exam. As of October 2026, insurers such as Canada Life and Desjardins generally require the request within 31 days of coverage ending or being reduced, with an age limit around 65. Check your plan booklet or the insurer's official site.

Does Ontario charge sales tax on group life premiums?

Yes. As of October 2026, Ontario Retail Sales Tax at 8% applies to premiums under group insurance contracts, and the CRA includes this levy when calculating an employee's taxable benefit for employer-paid life coverage.

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