“Ten Things Life Insurance Agents Won’t Say”- Thing #9, “If you die we’ll pay your boss”.

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Posted Dec 09

#9:  “If you die we’ll pay your boss” is next in my series of responses to “10 Things Life Insurance Agents Won’t Say” by Daniel Goldstein “Personal Finance Reporter” for MarketWatch.

I know it’s probably difficult to come up with ten facts that life insurance agents try to hide from their clients because most of us go to great lengths to disclose everything.  So this one is totally ridiculous:  If you are paying for a life insurance policy on yourself it is virtually impossible that the beneficiary designations would be a surprise to you.

The so-called “dead peasant policy” practices of large companies- being both distasteful and morally decrepit -nevertheless are evidence of life insurance’s tremendous leverage.  Insuring key employees still makes sense as long as it is protection against the loss of their irreplaceable financial value to a company.  It should not be used simply as a way to boost the bottom line.  Most insurers no longer issue such policies.  Good.

In addition to Key Person insurance, there may be contractual reasons for a company to insure an employee or partner (depending on legal structure).  For example, if upon her death a partnership agreement gives a partner’s family ownership and control of her shares, the remaining partners may prefer to buy out the heirs without having to borrow money or come up with a bundle of cash all at once.  A life insurance policy can provide those funds.

The takeaway:  “If you die we’ll pay your boss” is less likely than being struck by lightening.