Why is it cheaper to get term life insurance as a business or through a business than as an individual?
It seems much more costly to buy direct as an individual than thru my company. Is my company getting a tax credit/discount? Should I form an LLC to get the same discounted value?
August 12th, 2009 at 8:54 AM
The company is not getting a discount but they are dealing with products that are designed for companies to package to their employees. They may be providing a plan that is not as comprehensive as the individual plans you are looking at. Also the work site products are annually renewable and the individual plan you are looking at is probably some kind of multi year level term or whole life insurance plan which has rates locked in for a longer period of time. Your company may also be subsidizing it to some extent as a benefit to their employees.
I’m not an attorney but I don’t see how making yourself an LLC would give you cheaper life insurance rates.
August 12th, 2009 at 8:54 AM
The premiums are based on a number of factors, including the size of the risk pool. The larger the risk pool (the people of the company versus a single person), the lower the premium as the more likely it will be that the average person in a large risk pool has an average life span. With less variance, the better an insurance company is able to predict the risk and assign premiums. In a small pool, the risk is that a single person would die between say age 55 and 85 and teh insurance company has to adjust for the possibility that the person will die at say 60, meaning that they will not have as long to collect premiums. Meanwhile, in a risk pool of say 1,000, the odds are that as many people will die at say 85 as 55 and the insurance company can play off the added premiums of folks living to 85 against the folks dieing at 55 and reach a lower premium (lower than the single person) that is somewhere in the middle and allow them to get their money back (and make a profit).
The same goes for health insurance, car insurance, etc. This is why younger drivers have higher car insurance - their risk is higher than an older driver for an accident, but if you can match up that younger driver with an older driver (teenager and parents), the overall premiums will be lower because the company can play off the higher risk against the lower risk.
So, to answer the second part, it would not help to form an LLC or S-Corp, since the pool will still be 1 and the risk will remain the same for the insurance company.
August 12th, 2009 at 8:54 AM
The shorter the term, the lower the rate - and your BUSINESS buys term insurance on a month to month basis. Once someone gets to the point where they aren’t well enough to work - they stop being covered by that term insurance.
So that whole group, not only has the shortest term possible, BUT, has an inherent "wellness" factor calculated in to it.
And yes, any premiums a corporation spends on employment benefits directly reduce their taxable incomes.
You can’t get the same discounted value, by forming an LLC, unless you ALSO pay to insure a hundred lives at a time on a policy.
August 12th, 2009 at 8:54 AM
Make sure you are comparing apples to apples.
What is available to you through your employer may be different than what you can buy on your own.
I heartily encourage you to have both life insurance through your employer as well as your own policy.
What if you rely on your employer-provided policy ONLY and you leave your job, your employer shuts down or worse, you become too sick to work. Now you have to try to find a policy while you are in the highest risk class. If you can find it, the policy will be expensive.
Go meet with a financial planner.
Good Luck.