Who Holds Your Life Insurance? Companies Seek Benefits in Policies

Article excerpt

Byline: Sarah Skidmore, Times-Union business writer

You swear your job will be the end of you. But in a twist of dramatic irony, many employers would be richer from your passing on.

More companies are taking out life insurance policies on their employees that allow the company to collect benefits when the employee dies. There are no laws in Florida, or in most states, requiring employers to disclose the ownership of the policies. As a result, many employees are unaware their company stands to benefit from their demise, and, in most cases, the employee's beneficiaries won't see a penny of the payout.

Use of corporate-owned life insurance policies exploded last year, according to a study by CAST Management Consultants Inc. in Los Angeles. The study shows premiums grew from $1.5 billion in 2000 to $2.8 billion in 2001.

Companies have regularly taken out policies on executives, with the idea that the executive's death would cause disruption to business and affect the bottom line. However, the practice of insuring lower-level employees -- corporate-owned life insurance, but commonly called janitor's insurance -- is becoming more commonplace.

"Clearly, the Fortune 500 has fueled the bulk of the premium growth in the [corporate-owned life insurance] market," said George Braunegg, CAST partner and director of the study. "But the small-medium case segment is getting considerable attention from life companies and distributors alike."

This growing use has raised concerns that may bring the practice to a halt, forcing changes for many national and local companies.

In Jacksonville, companies such as Winn-Dixie and Bank of America are among the companies who use the insurance for financial benefits.

For most employers, the benefits come from the tax breaks provided by the policies. Premiums paid on the policies also act as partially tax-free investments -- payouts upon death are tax free.

Companies used to be able to borrow against the policies and pay interest tax-free. Congress closed the loophole in 1996, yet the market for corporate-owned policies remains active.

Companies primarily use the policies as a funding mechanism for benefits programs and are separate from life insurance policies that companies offer employees. The policies do not require physicals or other underwriting tools often used in personal life insurance policies, which is why many employees are unaware of them.

If an employee quits or retires, companies often keep the policy, depending on its terms.

Employees at Winn-Dixie must sign an agreement for the policy to be purchased that clarifies it is an investment method separate from their personal life insurance benefits. Companies such as Winn-Dixie say it is a viable investment method that helps protect the benefits it offers employees, said company spokesman Mickey Clerc.

Winn-Dixie finds such gain in the policies that it continues to use policies as investments, despite a notable federal case in which it was reprimanded for improper use of the policies.

The Internal Revenue Service launched an investigation in 1996 of more than 85 companies, including Winn-Dixie, to ensure that the policies were used for legitimate business purposes. …

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