by Guest » Sat Nov 21, 2009 12:12 am
I am a revenue producing employee for a service company. the company wants to take out a keyman policy on me, so that if something were to happen to me, they would be reimbursed for the lost revenue and cost of replacing me. they are going to pay the premium and be the beneficiary. What are my obligations? I don't want to do anything to put my family in jeopardy and honestly find it kind of morbid that my company wants to "profit" in the case of my death.
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Posted: Fri Feb 19, 2010 06:20 pm Post Subject:
Wow, typical insurance salesman lingo here! I am not making claims that the employer would "profit" from a policy like this, but in MOST cases they would benefit way MORE than the deceased family would, and there is my objection to this. And I am talking about a typical employee here and NOT a partner in a firm. Why would an employer have the right to legally throw the deceased person family off a health insurance plan while they collect a good amount of money from the deceased employee? Most people with common sense would not like this arrangement and why would anyone blame them? Yeah, of course you salespeople would say, "well this person should have had his own life insurance in effect to protect his family". I say BS to that. That has nothing to do with the fact that a company would get considerably MORE in most cases from the death of such a person than the family would which is my general objection to such plans. Thank goodness that laws were put into effect where employees have to consent to this before their employer can take out such insurance on them. If it were up to YOU salespeople, NO consent would surely be asked, since this would surely sell more policies for you.
Posted: Fri Feb 19, 2010 07:48 pm Post Subject:
"Typical insurance salesman lingo" is usually the code words for "people who actually know what they're talking about"
Posted: Sat Feb 20, 2010 12:41 am Post Subject:
And I am talking about a typical employee here and NOT a partner in a firm.
I hope a time can come in the future when you can take a second look at what you are saying and realize how ridiculous it sounds. Let's start with the fact that we are talking about keyman (person for the PC types) insurance; rank-and-file employees would not be insured under this arrangement.
As max pointed out much more eloquently than I will, if you understand insurance (you know a process to indemnify loss) wanting to recoup loss in revenue from the death of an employee doesn't make them evil. The nonesense about medical benefits has no place in this discussion. If the family wants to idemnify itself from loss lets say from losing health insurance and now paying higher costs, as you've pointed out, they should have addressed that themselves. It's about R-E-S-P-O-N-S-I-B-I-L-I-T-Y. Should the company purchase life insurance on the emloyee and use it to pay for the family's medical care indefinitely?
What about pension funds?
Posted: Sat Feb 20, 2010 05:56 am Post Subject:
but in MOST cases they would benefit way MORE than the deceased family would, and there is my objection to this. And I am talking about a typical employee here and NOT a partner in a firm. Why would an employer have the right to legally throw the deceased person family off a health insurance plan while they collect a good amount of money from the deceased employee?
Well, Steve, your real question is finally before us. You're talking apples, and we've all been trying to feed you orange juice.
A "typical employee" is NOT the subject of a key person policy. Far from it. As BNTRS stated above, if that "typical employee" (or even a "key person", up to and including the CEO or Chairman of the Board) is concerned about what happens to his/her family in the event of their own untimely death, a display of the little-exercised-in America-these-days PERSONAL RESPONSIBILITY is in order.
Are you deriding employers for not providing more than $25,000 or $50,000 in group life insurance? Perhaps you are not aware that any amount of group life death benefit in excess of $50,000 would be taxable to the beneficiary save for something known as "imputed income" wherein the employer attributes the cost of the insurance in excess of $50,000 to the employee, and the employee pays income tax on money never received, so a beneficiary won't on the money they do receive if the employee dies.
The true hardship here is on the employee who leaves the employer after having paid who knows how much tax on a benefit that disappears when the group insurance no longer applies to them. There is no mechanism in the tax code to provide that person with a refund of their "imputed income tax." So, like all other insurance we obtain and, in the best of circumstances, never use, we enjoy the peace of mind knowing that had something occurred, it would have been covered. Not having died leaves the family generally in a better condition than if a death occurs.
I'm sure you'll agree that most of us recognize $50,000 of life insurance is a paltry sum of money in the 21st century. Has been for a long time. If the family's need is for $100,000, $500,000, or $$?,???,000, then it is the individual's responsibility to go find it and pay for it with their own money. Your employer bears no responsibility in this decision . . . and, frankly, many employers truly regard group life as a non-benefit, it's just something that all their competitors force them to do, so they do it whether they like it or not and take the tax deduction for the value of the premiums they pay, since they DO NOT DERIVE ANY BENEFIT FROM THE GROUP INSURANCE they provide to their employees.
That's the same reason why employers DON'T get a deduction for any premiums they pay for key person insurance. They will receive a direct --tax-free-- benefit, even if the employee is no longer there. That issue has be discussed repeatedly above by me and others, and needs no further explanation here.
So, I hope you now realize, Steve, that your take on all of this is entirely one of misunderstanding the difference between group life and key person life insurance. Each has its place, and you are arguing as if they are one in the same when they are not.
As for your other comment about "legally throwing the family off the health insurance" and "collecting . . . money from the deceased employee", you clearly don't understand the entire premise of group insurance.
Group insurance (life, health, disability, LTC) is FOR THE EMPLOYEE. It is NOT for the family. The family is not part of the insured group, and if the employee leaves the company, vertically or horizontally, their entitlement to the group benefit ends.
Fortunately, most employers recognize the value of allowing employees to add their dependents to the plan, and the federal government used COBRA 1985 to force group plans to offer limited continuation protections for employees and those dependents who were also allowed to be covered -- although until just last year, there was never any financial help for the employees or their dependents.
ERISA (1974) and state insurance laws dictate who is eligible to be covered under a group insurance plan. The employer has little choice in the matter. They either cover 100% of their employees by paying the full cost of the insurance, or (in most states) they need to get 75% of the eligible employees to participate when the employees pay some or all of the cost of the insurance. Insurance companies often prevent the employer from putting all of the cost of the health insurance on the employees by requiring employers to pay at least $100 or 50% (which ever is less) toward the monthly cost of the employee's coverage.
Those same laws also tell employers how to identify those who are not eligible for coverage, like the dependents of terminated, deceased, or retired employees. So don't go around blaming employers or insurance companies for any of this. And please don't think what we've all been trying to tell you is "insurance salesman" hype. It's just the truth.
The truth can be unpleasant. But my clients appreciate my ability to tell them what's true, and educate them when they're wrong (10%) or if they simply lack the necessary knowledge (90%).
Hope this helps. And I hope we've been able to move you from the 10% column to the 90% column.
Posted: Mon Feb 22, 2010 03:47 pm Post Subject:
"A "typical employee" is NOT the subject of a key person policy."
That's what you think. Well, I work for a relatively small firm (less than 100 people) where I am the chief accountant who makes NO where near a salary like you people might have in mind. I am NO partner, don't have any shares in the firm, nor much say if any in the management of the firm. They are generally afraid that if I die, there won't be anyone who could quickly step into my shoes and do the job that I do, since the way things are done here are quite unique. They want to insure my life considerably more than I earn per year here. They may consider me a key person, yet I don't feel any obligation to the firm if I would happen to die. What guarantees do us employees have that the firm would even exist if one or more of the partners would die? None whatsoever, so why should an employee like myself worry about what is to happen once I am no longer around? Like I said before they surely won't be worried about my family if that was to happen, so why do I need to have my life insured for their sake? You guys look at it from the business perspective which is the only thing that seems to make sense to you guys, plus the commissions that you can make off policies like this and any other policies you sell. There is more to what's right and what's wrong in the world than what insurance salespeople's opinions happen to be.
Posted: Tue Feb 23, 2010 02:06 am Post Subject:
So that explains everything...your an accountant :lol: kidding
You are not a regular employee, you said yourself that you are the chief accountant and there is a very unique way of doing things around there. The company cares about what you do to the point of fearing loss if you die.
As I've stated several times, there are ways to design this sort of plan to benefit both you and your company. And if that avenue has not been traveled down then your boss has a bad agent.
There are deferred benefits that can be made available with life insurane while providing the company with protection from the loss it would suffer if you died, the company would be wise to look up a good executive comp. agent (you may not be considered or consider yourself an executive, don't get tied up in the the language, that's just what it's called most of the time).
It appears also a non qualified deferred compensation plan would be an excellent way to boost your opinion of your employer. It sounds as though you feel little loyalty to the company and could care less what happens to them. This sort of arrangement would also give you greater incentives to care about the company or at least your employment there.
So again, a good plan is designed to benefit both you (and your family) and the company. An ok plan involves protection for the company, and must involve a little selflessness on the employee's behalf, it happens.
Posted: Tue Feb 23, 2010 02:19 am Post Subject:
If you despise what the company is doing so much, you could always choose to try to find a job somewhere else. Just saying.
Posted: Tue Feb 23, 2010 01:37 pm Post Subject:
"As I've stated several times, there are ways to design this sort of plan to benefit both you and your company. And if that avenue has not been traveled down then your boss has a bad agent."
Thank you for acknowledging this! It is up to the company to make the right move here, and surely not my responsibility alone. If they showed more interest in my well being and my families, then maybe I would show more interest in theirs.
"If you despise what the company is doing so much, you could always choose to try to find a job somewhere else. Just saying."
I don't despise it, I just feel that loyalty should be a two way street. If they think that I am so important, they shouldn't only be protecting themselves in the case of my death.
Posted: Thu Feb 25, 2010 03:59 am Post Subject:
First off, this is a great thread. Entertaining, yet repetitive. Professional, yet somewhat brash and opinionated. Many excellent points, yet I'm starting to get bored.
In my professional and very experienced thoughts, as a person who presently has keyperson insurance on them, sold these things for years in my former life and now teach professionals the legalities and commonalities in these products (disability/life buy-sell, keyperson, deferred comp and all the related stuff), I can honestly say that I agree 100% with Max and BNTRS in this whole thing.
I've never seen an employer who was ONLY willing to go for the keyperson plan and NOT take care of the employee at the same time. Every single time I've either sold or reviewed plans of others as a consultant, there's always been a component that rewarded the employee. If you were the employee and your employer told you he wanted to put a $2.5 mm life policy on you, wouldn't you wonder "what's in it for me?" The first time it happened to me, I asked that question and that's when I learned about the wonderful world of deferred comp, 162 plans and all that cool "that's what's in it for me" stuff.
How can ANYONE dispute the validity and necessity of these plans? The person that does absolutely astounds me. Put it to you this way: Hey STEVE888- try on the shoes for a minute! You have a multi-million dollar business and you have a couple of employees that are critical to your success. If they die, you are totally screwed. Keypersons are generally defined as those who either contribute substantially to the profitability of the business or without whom the business would suffer "critical and irreparable" harm. So, you go ahead and NOT buy the coverage and one of those employees dies. Better yet- they die together in an accident on the way to a key business meeting. :shock: Let's keep going, shall we?
After the business meeting disaster because you couldn't handle the meeting without your boys (they're dead, remember?) you went back to your office. Eventually, you'll get around to thinking about how to handle what the dead guys used to handle. You'll find that their replacements aren't going to be found easily. Transition periods for high-end employees in these situations (read "get back to normal") is commonly a year or longer. In the meantime you're not getting the profits you were just a few months ago. Maybe not even close. Let's fast forward...you were so short-sighted that you failed to recognize the fact (!!!!) that the death of these key people have now caused your business to fail. Dramatic example? Actually, not really. I've seen it, and I bet Max and BNTRS have, too. Now how many employees are out of work due to your (hypothetical) short-sightedness and deliberate refusal to see the true purpose of these contracts? I guess I'm just curious as to WHY you're so opposed to these products??
Wait a minute... if you had purchased the proper coverage with an agent that knows what he's talking about, you could have easily weathered the financial storm and you wouldn't have put who knows how many employees out of work.
BTW- that's why they don't let the President and Vice-President travel on the same plane.
Those insured under these contracts are supposed to be invaluable to the company. Sure, you've heard stories about companies that have placed life insurance on employees who don't meet this definition, but there's plenty of case law on that stuff now and it doesn't happen that often anymore. :D
InsTeacher 8)
Posted: Thu Feb 25, 2010 07:43 pm Post Subject:
Steve, you sound awfully wussy. Let's see if I understand this situation correctly. Your company thinks that you are very important to their success. They want to buy life insurance because if you die today, they can't readily replace you and your death will hurt the company. You are upset because you know that the company thinks that you are valuable, but they aren't going out of their way to give you more money or find some way to compensate you.
I am calling you a wuss because you are whining to us instead of being a man and having a conversation with your employer. "Hey employer, I'm honored that you think that my death would hurt the company to the tune of $3,000,000, but if I'm that valuable, you can't continue to compensate me like someone who is worth $50,000. I'll agree to allowing you to purchase coverage on me, but this is what I want..." You know your employer and the best way to handle this, but to do anything other than talk to them, makes no sense at all.
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