Would you pay $500 to place a bet that pays $500,000 if you died this year?
Google employees get a life insurance policy "benefit" that pays out 3x salary in the event of death. Unlike many fringe benefits, the IRS considers this one taxable income. It's on a sliding price scale by age, and can't be opted out of. For a Googler in their 20s or 30s, this comes out to around $450/year in additional income, taxed at the marginal rate, costing most employees around $200 a year.
So, is it worth it for most folks? Let's calculate the expected value for a median Google employee (a 29 year old male):
What you get
- Likelihood of death in 1 year = [0.001734%]
- Multiplied by the total payout (median $166k/yr salary) = $500,000
The insurance's expected value is $867. Or is it? College education correlates with 1/3rd the mortality in the United States (Table I-7). So let's adjust for that, since most Google employees have had at least some college education.
- Divided by the 3.5x lower likelihood of death among college educated Americans = $247
Total expected value from the insurance: $247
What it costs you
- The tax cost paid by the employee = $200 (additional tax)
- Google paid the insurer $450; without the policy, that cash could be directly paid to the employee = $350 (post-tax)
Total cost for the insurance: $550
So now you could either have $550 cash, or an expected value $247 payout from insurance. At Google's roughly 100,000 employees in the United States, that's a net "waste" of $30,000,000 a year.
Just buy it yourself
Even if we aim to be charitable to the insurance’s goals — insulating people from low probability events — the math still doesn't work out. If you're an employee who needs life insurance for money after the unexpected event of your death, I have a much better solution than Google's perk: just go buy it yourself with the $550 extra in your pocket. GEICO will happily sell you a no-medical-exam-needed $500,000 policy for $156/year, leaving you with an extra $394 in cold hard cash to spend on your last year on Earth.