Employer owned life insurance
originally posted: 11/22/2006 reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email asktony@tonynovak.com.
Q: If a life insurance policy was purchased through an employer that went out of business and was then purchased by another insurance company should the new company contact the insured? The policy was paid up. This happened to my dad. He quit the company, no one ever gave him a copy of the policy and no statements were ever mailed out until last July, 32 years after his death. My mom and dad never knew about the policy. Should they have to pay interest?
A: No; it is common for many employers to take out life insurance on the lives of employees. The business was both the owner and the beneficiary of the policy, so the employee usually did not benefit from this arrangement. Under that laws that existed at the time, there was no requirement to notify the employee. If the business was sold, then the policy would have been transferred to the new owner in the same manner as any other business asset. It is not clear why a notice is being mailed to you now so many years later but in any case laws have changed so that employees must now be notified of insurance taken out on their lives. Ironically, employers profit from permanent-type life insurance (usually whole life or universal life insurance) on former employee while the surviving family members often suffer financially because the employee did not see the value of permanent-type life insurance when it was offered as an employee benefit.
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