In my 20 years as a Life Insurance advisor, I’ve seen Life Insurance policies being put to many different uses by my clients. For high and ultra-high-net-worth entrepreneurs especially, Life Insurance can prove to be a diverse, powerful tool.
But I want to share with you a recent case and one of the most unique applications I’ve seen for Life Insurance.
This entrepreneur reached out because they wanted to use Life Insurance as a Human Resources tool in their organization: Something with which to attract and retain top talent in the company.
And no, this isn’t just standard Group Life Insurance.
This program is a one-of-a-kind solution that takes the Life Insurance benefit one step further.
My client decided to turn Life Insurance into a gift for his employees. Let’s call my client’s company ‘ABC Corp’.
Here are the key differences between ABC Corp’s Employee Life Insurance Benefit and the typical corporate Group Life Insurance Plan.
As you go through these, note the power the model has for organizations with a long-game, long-term mindset.
Key Difference 1: Policy Ownership and Beneficiary Choice
In a typical Group Life Insurance program, Life Insurance policies insuring employees are purchased and owned by the employer. The employer is the beneficiary of the Life Insurance policy and they receive the payout from the Life Insurance policy, should the employee die. These proceeds are then forwarded to the employee’s beneficiaries at the discretion of the organization.
ABC Corp’s Life Insurance program on the other hand features a Portable Life Insurance Policy.
What does this mean?
In essence, ABC Corp can choose to transfer this policy to the employee at any point in time, even as an end-of-service benefit at the end of a long, fruitful employee-employer relationship. If the policy is transferred to the employee, the employee can then list their loved ones as beneficiaries, bypassing the company altogether.
Key Difference 2: Term of Coverage
A typical group Life Insurance is a Term Insurance Policy, which lasts for a specific amount of time which could be 10, 15, or 20 years. Much like a car insurance policy, if the policy goes unclaimed, it lapses at the end of this period and needs to be renewed. In other words, if the employee lives beyond the term, the policy has no payout.
A Group Life Insurance benefit also typically ends when an employee exits the firm.
ABC Corp however decided to purchase Universal or Whole Life Insurance coverage.
This type of policy, as the name suggests, lasts for the whole of the insured individual’s life. ABC Corp, or the employee (if ABC corp. wishes to transfer the policy), can receive a death benefit payout from the policy long after the employee retires or resigns.
Key Difference 3: Cash Value
A Term Life Policy builds no cash value. Premiums paid into the policy cannot be drawn out. This is how most Group Life Insurance policies are set up.
A Whole Life Insurance Policy, however, the kind that ABC Corp is putting in place for its employees, builds cash value over time.
The premiums paid into a Universal Life Policy are invested into a fund by the insurer. The policy value grows over time depending on the performance of the investment fund. The policy essentially becomes a cash reserve for the policy owner to draw from if they choose to.
So, how does this structure benefit the employees of ABC Corp?
Key Benefit 1: ABC Corp pays for the employee’s Life Insurance policy
The obvious benefit here is that ABC Corp is paying Life Insurance premiums for their employees. If they choose to buy a policy personally, they would be paying for these premiums out of pocket. With this structure in place, employees don’t have to budget for premiums.
Key Benefit 2: Forced Savings and Financial Security
A Life Insurance policy is also a vital savings vehicle for many families. Sadly, a lot of people never get around to getting a Life Insurance policy in place, never creating that savings pot. If they do, it’s often not the right amount of cover or structure for it to truly become a benefit for their loved ones when they die. ABC Corp is checking this box for its employees.
Key Benefit No. 3: Vetted Policy and Service Provider
This saves the employees a lot of hassle. Finding the right policy, and a trusted financial advisor can be an intimidating and easily procrastinated task. ABC Corp is doing that work for its employees. My team and I are the business owner’s own Life Insurance advisors, and we’re being extended to the team as trusted advisors.
Will It Work?
Great question and the truth is that only time will tell. This is a one-of-a-kind way of using Life Insurance as a benefit, and it’s something that we’ll need to study over time.
But let’s take an objective look at what ABC Corp has done and why I believe this program is perhaps one of the most powerful structures I have seen for companies with a long-term mindset.
With a few critical differences in the way they are setting up this program, they’ve overcome the shortcomings of typical Group Life Insurance.
- They’ve created a long-term asset for their most valued team members.
- Instead of a fixed, limited benefit, they’ve created something that grows over time as the cash value of the policy builds.
- And most importantly, they’ve created something that can be turned into a valued gift for their legacy employees, as opposed to a contract or policy that simply dies when an employee exits the firm.
It’s something that fosters a long-term mindset for both employee and employer. It makes the team feel appreciated and invested in and might become a reason for them to become advocates of the organization and its culture.
The value is unquestionable, but you’ll need to hit the notification bell wherever you’re watching this to find out how this turns out for ABC Corp.
I’ll drop an update on this case study here as we watch this case unfold.
If you’re looking for ways to optimize your Life Insurance policies, whether personally or within your business, reach out to me, and let’s set up a conversation. Life Insurance is perhaps one of the most understated yet most powerful tools in your estate and succession plan. I’m happy to help you uncover just how you can use it.
