Gov. Davis has signed a law barring employers from taking out corporate-owned life insurance policies on employees, with some exceptions. The law does not affect the validity of employer-purchased life insurance that is provided as an employee benefit.
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New Limits on Corporate-Owned Life Insurance
Here’s a summary of the new law:
Corporate-owned policies invalid. The new law prohibits “corporate-owned life insurance policies,” which are life insurance policies purchased by a California employer to insure the life of a current or former employee who is a California resident, if the policy designates the employer as the beneficiary. Any such policy purchased on or after Jan. 1, 2004, will be void.
Key exceptions. The prohibition doesn’t apply to policies insuring the life of an employee who qualifies for the executive, administrative, or professional exemption from overtime. However, you must have an “insurable interest” to obtain a life or disability insurance policy that’s not otherwise barred by the new law, and you must obtain the written consent of the person being insured. An insurable interest means that the employee’s death or physical or mental disability might cause you financial loss.
Policies currently in effect. A corporate-owned life insurance policy purchased before Jan. 1, 2004, will become void on the next premium payment date that is on or after Jan. 1, 2009, but not later than Jan. 1, 2010. If you have such a policy, you must disclose the following information to the employee, in writing, no later than March 31, 2004:
- That the corporate-owned life insurance policy exists;
- The identity of the insurer;
- The benefit amount under the policy, unless the full benefit will be used to defray the current and future costs of nonexempt employee benefits;
- How benefits paid under the policy would be used; and
- The policy beneficiary.
If the employee no longer works for you, you can mail the disclosure to their last-known address.
