Reply #16: Very common [View All]

This is used all the time by large companies, usually to fund non-qualified deferred compensation programs. Its called COLI (company owned life insurance). What many aren't understanding here is that companies usually take out the insurance on the life of those who participate in the plan, not all the rank-and-file employees. All it is is a tax advantaged means to fund the eventual pay out to the plan participants.

The company pays the premiums on the policies, then when the employee eventually dies the money goes into the deferred compensation fund from which all participants are drawing. It really isn't much different than an individual paying an insurance policy so that upon his death his family gets the proceeds.

You also have to understand that this doesn't make money for the company, unless you think insurance companies are too stupid to charge the appropriate premiums. The insurance companies make out like bandits.

Actually the only morally questionable thing in the process is the degree to which the insurance brokers go to hide how much they are making in commissions, and seeing how much they can overcharge the companies through confusing "explanations" of their product.