Why set up an Alternate Basic Life plan if anyone can buy Optional Life?
When some employees are allowed to use state money to buy life insurance in a plan, then anyone who is in the same plan and has more than $50,000 in coverage must pay income tax on the cost of the coverage in excess of $50,000. To keep from increasing many employees’ tax bills, we must prohibit using the employer contribution to buy life insurance through the Optional Life plan. However, we want employees eligible for half the employer contribution to be able to buy up to $50,000 of life insurance with that money. That’s why we set up a separate plan just for them. To avoid any extra taxes for that group, we limited the amount of life insurance that could be purchased through Alternate Basic Life to $50,000.
