Life Insurance Is More Than Its Premium - Zupnick Associates

(by Jordan Johnson)

There are many factors that come into play when determining life insurance premium costs. Things like your age, health, and where you live can dictate how much you pay for your policy.

When we think of life insurance, many people assume it’s out of budget, with 50% of people overestimating how much it costs. The truth is, being covered by life insurance can be affordable for almost everyone.

This article will cover some of the excellent use cases of life insurance for organizations and why it could be an option for many of us.

Who Is Life Insurance For?

Life insurance can be used as part of your retirement planning and alongside your regular estate to be passed to your heirs when you die.

Organizations can use life insurance in cases such as employee benefits, as cover against the sudden death of a key employee, or as part of a buy-sell agreement on partners to ensure the business continues running as smoothly as possible in the event of the death of a key shareholder.

Is Life Insurance Affordable?

Life insurance is typically more affordable the younger and healthier you are. Term insurance for those over 50 is likely to be more expensive than for someone who is around 25, with costs usually dictated by overall health, age, and lifestyle habits.

When offered through an employer, group term life insurance will allow the policyholder to pay the first $50,000 worth of coverage out of pre-tax earnings. Many employers have pre-arranged group discounts too. Of course, that’s if the organization isn’t covering the whole bill.

A well-designed permanent insurance plan started when someone is relatively young and fit can help combat rising premium costs as the person ages, as cash assets within the plan are invested, and the proceeds are used towards the higher cost of coverage.

Why Should Organizations Offer Life Insurance as Part of Their Compensation Package?

There are numerous reasons why organizations consider using life insurance, with around 60% of all US employees having access to some kind of plan in 2018.

Group Life Term Insurance

For organizations, term life insurance is the most common plan available. Group term insurance is a potentially low-cost way to ensure your workforce is looked after in the event of their death and is one of the most common benefits organizations offer.

Organizations can offer either a contributory arrangement or decide to pay the life insurance cost in its entirety.

Some organizations also offer employees extended coverage or the inclusion of family members via payroll deductions, so there should be something to fit all budgets.

Another benefit to group term life insurance is an employee won’t always be required to go through the underwriting process for risk assessment.

Life Insurance as a Retention Tool for Execs

An organization can take out policies on executive employees which accumulate a cash value which can be used to provide additional retirement income for that employee as part of their executive bonus plan.

Should the employee pass away, the organization can use the money to provide a death benefit to the family of the executive. 

In this case, the policy is owned and paid for by the organization, and the organization holds onto any funds inside the policy until retirement or death. 

Key Person Insurance

Key person insurance aims to cover an organization in the event that a key person passes away. An organization may feel like this is viable for a number of reasons such as:

  • The employee is critical to the success of the organization.
  • The employee generates significant revenues for the organization.
  • The key person fulfills a highly specialized role that will take a lot of time and money to rehire for.

A policy on a key person is usually owned and paid for by an organization, with the organization as the beneficiary. Taking out a policy on a key person requires their consent in writing.

Life Insurance as a Succession Planning Tool

Life insurance can be the perfect succession planning tool, as through a buy-sell agreement, the organization can use a death benefit to buy out a deceased owner’s assets in a company at a fair market price.

This allows the company to continue running as usual while beneficiaries of the deceased will receive cash instead of potentially difficult-to-manage assets.

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