Keyman Insurance: What are downsides to employees?

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PostPosted: Thu Feb 25, 2010 7:43 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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PostPosted: Fri Feb 26, 2010 2:06 pm   Post subject:   

I've seen this issue before. Company has an employee who is important, but isn't an executive level employee. Employee feels that they are undercompensated, unerappreciated, or both. Company understands that the loss of this employee could cause major problems.



I know someone who presented a keyman proposal with deferred comp to the insured for a small company that wanted to cover an employee who was sort of in Steve's situation, but everyone knew the employee was underpaid. When they brought the proposal to the employee and asked him to sign off on being insured he looked at the paperwork and asked, "You want to spend that much money to do this?" They answered yes and he responded with, "how about you just give me a raise for that amount?" The company complied with his request and the insurance plan went by the wayside.

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PostPosted: Mon Mar 01, 2010 7:31 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."



Wussy?? What a clown you are! The company wants the insurance on me so it is up to them to figure out how they could get me to sign the documents. Absolutely NO skin off my nose if they insure me or not. I won't be asking them for more money just because of this. If they want me to sign, they need to come up with the ideas first. I as an employee surely should not be getting the blame here, but of course insurance people will blame those who get in the way of making them a commission, which in this case would be me. Tough noogans people!!


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PostPosted: Wed Mar 03, 2010 10:54 am   Post subject:   

You are the one here whining about this and not your company. You are the one who thinks that you deserve something in exchange for agreeing to this (I agree with you.).



If you want something in exchange for agreeing to this, ask for what you want. Otherwise, like I said, you are a wuss for coming here and complaining instead of talking to your company. Based upon your posts, there isn’t any question as to why your company thinks that you are a keyman, but is willing to treat you like a peon.



You are saying that it’s no skin off of your nose, yet, the reality is that it’s plenty of skin or you wouldn’t be so upset. We don't care whether you get insurance or not. This is an excellent opportunity for yourself and you'd rather come complain to a message board than take advantage of it.

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PostPosted: Thu Mar 04, 2010 3:21 am   Post subject:   

Why not hit them up for more money as a result of all this? It's a perfect opportunity.



Think of it, some insurance agent somewhere opened the door of opportunity for a raise and has done everything short of personally delivering an invitation to walk on through. Why not work with these people rather than against them. Forget the fact that I have an insurance license. If I were your wife I'd be yelling at you to approach this more positively.

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PostPosted: Fri Jun 10, 2011 12:33 am   Post subject: premium payment  

I have a question regarding the keyman insurance premiums. How about if my employer is putting a $1M insurance policy on me (50% would benefit the company and the other 50% would benefit my family)? Would I (the employee) have to pay tax on the premium that my employer is paying?


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PostPosted: Mon Jun 13, 2011 6:30 am   Post subject:   

You don't have to pay tax on the premium unless you expect the money to be paid to your beneficiary tax free. They would pay income tax on the $500,000 they receive. If you paid the tax on the value of the premiums for your $500,000 share of the proceeds, then the payment will be received without an income tax liability.



What you are describing, however, is an unusual use of life insurance. Typically, a keyperson policy benefits only the company. If you are a non-exempt employee, then this arrangement is very problematic under both state and federal laws.



Other than the liability from a deferred compensation plan (which is a taxable event), if there was a benefit promised to an employee's heirs funded with life insurance, the policy is usually a "split dollar" plan in which the company recovers its premium expense at the executive's death, and the heirs receive the full promised benefits.



Changes to the tax code in the early 2000s now require that the premium portion of a split dollar plan that benefits the executive's heirs be imputed as income or treated as a low/no interest loan (which is a taxable event) in order for the heirs to receive the money without an income tax liability.



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PostPosted: Sat Dec 10, 2011 7:43 pm   Post subject: key man leaves  

I have a key man term policy and my key man stole money from the business and left abruptly thereafter. I want to keep the policy even though the business has been sold for a discount because it couldn't be managed effectively by others who remained. I don't want to let my policy lapse but want to be sure that should he die, I will get paid. he has called the insurance agent and company to alert them he is no longer a key employee to "screw" me from collecting anything if he dies. I absorbed a hefty loss due to his criminal behavior and prefer to hold the policy.


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PostPosted: Sat Dec 10, 2011 9:10 pm   Post subject:   

Quote:
he has called the insurance agent and company to alert them he is no longer a key employee to "screw" me from collecting anything if he dies. I absorbed a hefty loss due to his criminal behavior and prefer to hold the policy.


Doesn't matter that he called anyone or everyone. If you are the policyowner, you can keep paying the premiums until he dies, and then you can collect the death benefit tax-free. No one can prevent that. Except you, by not paying the premiums.



Your biggest mistake? Using term life for this key person policy. Should have used a form of cash value insurance instead. Here's some possibly good news . . . if your agent never discussed the benefits of using anything other than term life for this specific need, you might have a claim against his Errors & Omissions insurance policy for his negligence in recommending the wrong product for your need.



But if you simply chose the term product because it was less expensive, the best outcome is for the fellow to die soon. Just not at your insistence.



The money he stole? Well, if nothing else, you can probably claim a deduction on your business tax return for that.


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PostPosted: Thu Jan 05, 2012 7:56 am   Post subject: Nevada Law  

Gentlemen,



Does the state of Nevada Law require that anyone that does have a COLI taken out on them be notified that the policy was purchased by the company?


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PostPosted: Fri Jan 06, 2012 4:30 pm   Post subject:   

I don’t know about Nevada laws but under the COLI Best Practices Provision, it is stated that:



Quote:
The Employee must, prior to the issuance of the insurance contract:



1. Be notified in writing that the employer intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract is issued.



2. Provide written consent to be insured under the contract during and after active employment.



3. Be informed in writing if the employer will be a sole or partial beneficiary of any death benefits.




Ref: http://en.wikipedia.org/wiki/Corporate-owned_life_insurance#1990s_to_p resent:_Limited_reform Embarassed
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PostPosted: Thu Jan 12, 2012 3:20 am   Post subject:   

Changes to federal law in 2006 now require that employees must give consent to be insured and must be given a disclosure that they or their heirs are not entitled to any portion of the policy proceeds, unless that is not the case. It applies in Nevada and all other 49 states, the DC, Puerto Rico, Guam, the Marshall Islands and other territories and possessions of the US.



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PostPosted: Thu Jul 04, 2019 5:00 pm   Post subject:   

Honestly speaking, I don't think key man insurance policy is going to hurt any of your family member in case of death etc. The premiums are only paid by the business owners to cover their loss in case of life loss of their key business generator or the case of disability. Here, you can also read thoroughly about this insurance from My Key Man Insurance Policy and how it works. Again, you don't really need to worry more.

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