Does The Bank Profit From The Death Of The Employees?
When an employee dies, the bank receives a death benefit but loses the future tax benefits of the policy. Mathematically, it would be better for employees to never die as the insurance policies earn a rate of return higher than the bank can earn elsewhere, ignoring the ultimate value of the insurance proceeds. However, in the event of a premature death of one of the participants, the bank receives tax-free funds to provide the benefits promised to the employee’s survivors and to search for a suitable replacement. It is not a windfall for the bank, but the plan does provide protection to the bank and the participants’ survivors. In either case, an unexpected premature death or the expected death at the end of a long life, the proceeds flow into the bank tax-free. The tax-free nature of the death benefits, enhance the powerful cost recovery nature of the proceeds.
