Life Insurance On Employees
Many people have the mistaken notion of associating life insurance with death. That is, you have to die in order to get the benefits. This is a myth that is preventing them from taking advantage of the many benefits of life insurance. In fact, life insurance is a powerful financial tool that protects life and adds value to life itself.
Insurance companies now offer innovative life insurance on employees that not only benefits employees but employers as well as an instrument of wealth creation. They are tax-efficient ways of providing employee benefit programs and effective means of offsetting the rising costs of employee benefits which are major HR expenses. An overview of the types of life insurance on employees follows.
- COLI/BOLI – COLI or corporate owned life insurance and BOLI or bank-owned life insurance are popular among large corporations, banks and other financial institutions. These big companies purchase life insurance on employees and pay the premiums. The purchasing companies own the cash value of the policies and are the designated beneficiaries with the consent of the participating employees. A COLI/BOLI helps provide for retirement benefits and deferred compensation to employees. For the company, it is a potential source of annual after-tax returns that are generally higher than those earned on bank deposits. It is as well a ready source of death benefits in case a participating employee dies, in accordance with any existing company policy.
- Split Dollar Plans – This life insurance on employees allows you to provide a great financial legacy to your employees while earning for your company considerable earnings on your cash investment. You can offer split dollar plans to a group or different groups of executives or employees or just one key executive. The company or employer buys a life insurance policy on a key employee, pays the premium and controls the policy with access to the cash value, being the owner of the policy. The insured key employee chooses the beneficiary or beneficiaries. If the key employee dies, the company gets the cash value or total premiums paid whichever is higher while the beneficiaries of the key employee get the difference between the policy amount and the cash value or total premiums paid. This is a win-win arrangement because the company recovers all its investment or more and the beneficiaries of the key employee are adequately compensated.
- Group Term Life Insurance – This insurance on employees provides protection to the insured for a specified period of time. There is no cash value accrual and the benefit is paid to the beneficiaries only upon the death of the insured. The company pays for a basic life insurance coverage depending on its policy. Employees may opt for a higher coverage and pay the premiums for the additional coverage.
- Group Universal Life Insurance – GUL is a voluntary life insurance on employees to provide an additional layer of financial security for their families. The employees pay all the premiums but they get to enjoy the advantages of a group plan without need for complex underwriting requirements. The group plan gives the insured employees tax advantages, guaranteed interest rates, cash value buildup and loan and withdrawal privileges.
- Variable Group Universal Life Insurance – VGUL works like a GUL but it allows the insured to invest in a variety of subaccount choices like stocks, bonds and securities from nationally recognized fund managers or supplement their 401(k).
Attracting the best talents and retaining the best employees take more than just a good paycheck. Packaging employee benefits that include life insurance on employees is a great way to win employee loyalty. After all, loyal employees are a business’ most important asset. However, younger employees often don’t seem to appreciate the benefits of long term life insurance. Employers need to make them feel that their work is valued and that their well-being is a priority through effective communication.
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