Does Your Employer Benefit From Your Death With Employer Life Insurance?
As its name implies, employer-owned life insurance is a type of risk vehicle that your employer takes out on your life. The purpose of this life insurance policy is to compensate the employer if you die. The employer may or may not use this policy to pay retirement benefits to you after you retire, but the beneficiary on the policy is almost always the company.
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Purpose
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The purpose of employer life insurance is to create a benefit for the employer and for you, the employee. These policies may be defined benefit plans that pay you a retirement income when you retire from your job. But the policy may also be a key person life insurance policy. This type of policy is purchased on the lives of executives to compensate the employer for the loss of its key managers (individuals who are irreplaceable to the company). In effect, the money is designed to be used to locate, hire and train a new manager when the insured dies.
Significance
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The significance of employer life insurance is that the employer benefits when you die. The employer pays the premiums on the policy, so the net long-term cost for insuring your life is often zero because the death benefits are normally more than the total amount of premiums paid into the policy.
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Benefit
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The benefit to the employer is that the firm can provide insurance on your life and receive an economic benefit for little or no long-term cost. In the case of a defined benefit plan, you also benefit since the employer promises to pay a set monthly pension amount when you retire.
Disadvantage
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The perceived disadvantage of this type of policy is that the employer may profit from your death. This is true in cases where the death benefit far exceeds the premiums paid into the policy. You, as an employee, may be worth more money dead than alive. As an employee, you might find this uncomfortable. However, companies generally do not purchase life insurance for the sole purpose of profiting from an employee's death. Instead, the insurance policy is designed to provide compensation for an economic loss to the business and make the company "whole" for an incurred loss.
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