Though most people don't know it, employers have a practice of taking out life insurance policies on their employees so they can collect money in the event of their untimely death. And we're not talking about the kind of policies you might expect on key players like executives or other big wigs. We're talking about life insurance policies on rank-and-file workers.
The practice of taking out such policies on common workers has led to this field of insurance being called "janitor's insurance" or even "dead peasants insurance" in some documented instances!
Why would a company want to take out a life insurance policy on its workers?
The answer is complex. On the most basic level, a company has invested time and resources into an employee, which could justify wanting such a policy should that employee die.
But taking a deeper dive, DeadPeasantInsurance.com reports there are various other reasons.
First, any money the company receives from the insurer is tax-free. Beyond that, companies can also reportedly get access to additional loans through the policy. Finally, the premiums are deductible from company profits. So there is actually a lot of incentive for companies to do this.
How do you know if you have one of these policies out on your life?
Several ways actually!
1. You'll be notified in writing that your employer is considering taking out a policy and for how much.
2. You'll be asked to give your consent to be covered during and even possibly after your employment.
3. You'll be told in writing if your company will be a partial or sole beneficiary of accrued death benefts.
4. DeadPeasantInsurance.com has a list of companies that reportedly buy these policies on some of their employees.
Why you should have your own life insurance policy
This discussion of life insurance highlights the importance of having your own policy, for the benefit of your family and heirs. Insurance industry research group LIMRA reports that three out of five Americans own their own life insurance policy, which is great!
The bad news? Another 40% of us have no coverage in place in the event of our untimely passing.
A lot of people shy away from life insurance simply because they don't understand it. Here are some common questions about life insurance and the answers you need to know to make an informed decision.
What kind of life insurance do I need?
Clark recommends what's called level term insurance.
"Level term" means you pay one flat rate year after year for the length of the policy. This policy will replace your income should you die prematurely.
You buy it for periods of 20 or 30 years and the premium stays the same during the life of the policy.
How do I shop for it?
You can comparison shop for term life insurance quotes at any of a number of sites like Quotacy.com, PolicyGenius.com, 1stOptionInsurance.com, Insure.com, AccuQuote.com or QualityTermLife.com.
By shopping online, you avoid an insurance salesperson trying to up-sell you from level term coverage to another insurance product that may be unsuitable for you.
Can I afford it?
Yes! One non-profit insurance industry group says that a healthy 30-year-old man can get a $250,000 level-term policy for 20 years at a cost of less than $13 a month.
That's around $150 a year…and the price never goes up with a level-term policy!
How much coverage should I buy?
When it comes to the question of how much you should buy, people can get crazy with all kinds of complicated formulas. Clark says that you should buy six to 10 times your annual income.
Should I get it through work?
This is a popular option for a lot of people. But it's often better to qualify on your own and go through medical underwriting so you can buy a policy independent of your employer.
The reality is most of us don't stay at the same place forever and you may not have a right to take that insurance with you.
Do I really need it?
Does somebody depend on you? Do you have young kids or a spouse or significant other that depends on you financially? Then you need life insurance!
And don't forget about stay-at-home spouses. Should a stay-at-home spouse pass away, the remaining parent would have to suddenly pay for childcare and everything else a stay-at-home parent does on a day-to-day basis. That's why it's essential the parent at home have a policy too.
Don't have any one who financially depends on you? that's the only time you don't need a policy.