As employers look to diversify benefits offerings, there is growing interest in providing group whole life insurance options in addition to term policies, according to Brad Ridnour, head of worksite distribution for MassMutual Workplace Solutions.
“Unlike term life insurance, group whole life is a permanent life insurance product that builds cash value over time, with a guaranteed level premium, guaranteed death benefit and guaranteed cash value,” says Ridnour.
Ridnour notes there is an appeal of a group whole life product as a financial asset that checks the boxes of death benefit, cash value accumulation and the potential to receive dividends.
“It’s a three-pronged product wrapped into one.”
Advantages of whole life dividends
Dividends, while not guaranteed, can be an enticing additional feature of an employee’s group whole life certificate (note: Massachusetts Mutual Life Insurance Company (MassMutual) has an impressive record of having paid dividends to eligible participating policyowners every year since 1869).
The flexibility of dividend usage is also compelling, according to Ridnour.
MassMutual group whole life certificate owners options to receive dividends include in cash, or opt to leave it with the company to accumulate at interest.
However, Ridnour says the most common choice among MassMutual’s certificate owners is to purchase paid-up additional whole life insurance, a path that can increase the total death benefit and cash value over time. Paid-up additional whole life insurance is also eligible to receive dividends.
Another alternative available once an employee leaves the company and takes the certificate with them, is that they can change their dividend option and choose to have any dividend payments received reduce their premiums.
Note: In general, whole life insurance dividends are considered a return of premiums. As such, they are not taxable income unless the total amount of dividends received exceeds the total amount of premiums paid (the cost basis). If dividends are left to accumulate and earn interest, the interest credited each year is taxable income that MassMutual must report to the Internal Revenue Service (IRS). There are certain circumstances when dividends are not a return of premium and, therefore, are taxable. One example is when the policy or certificate is a Modified Endowment Contract, or MEC. These are considered by the IRS to be savings or investment vehicles rather than life insurance. Under these circumstances, the dividends are taxable as income to the policy or certificate owner to the extent there is gain in the policy. In this case, the only exceptions are for dividends applied to reduce the premium or to buy additional insurance.
Employers are key to education
Employers can play an important role in helping employees better understand group whole life insurance and its advantages, such as its guaranteed death benefit and the potential to receive dividends.
“Employee education is critical and having a robust informational campaign helps employees make the most informed decision,” says Ridnour, adding the more they understand the product, the more likely they are to appreciate and retain it.
A calm in a market storm
Market fluctuations can make some products less appealing, but Ridnour says group whole life coverage is a great option to help take care of an individual’s insurance protection needs with guaranteed cash value that will never decline due to market conditions.
“You know what you are going to get, you know what you are going to pay, and you know it isn’t going to change because of the guarantees.”
The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
Group Whole Life Insurance (GPWL), (policy/certificate forms MM-GPWL-2014 and MM-GCWL-2014, and MM-GPWL-2014 (NC) and MM-GCWL-2014 (NC) in North Carolina), is level-premium, participating permanent life insurance. The GPWL policy and GCWL certificates are issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001. The product and/or certain features may not be available in all states. State variations will apply.