According to the 2024 Nationwide survey, half (51%) of midsize business owners rate the current state of the U.S. economy as poor or fair. Constant inflation and rising interest rates are also having an impact: 58% of midsize business owners consider inflation as their most significant challenge.
Economic difficulties are not the only problems employers face. While the labor market is showing signs of cooling, employers are still struggling to attract and retain talent. According to the U.S. Chamber of Commerce, hiring has exceeded layoffs since November 2020, meaning Americans are finding better opportunities with new employers and in new trades.
Losing valuable employees can also be costly for business owners: replacing an employee can cost up to 400% of the departing executive’s annual salary.
Corporate owned life insurance (COLI) is policies taken by employers on the lives of their key employees.
Corporate owned life insurance policies can help business owners meet deferred compensation plan obligations, which attracts and retains employees in the current labor market. When companies promise future benefits to their employees, it creates liabilities that can increase over time.
For example, if a business owner allows their executives to defer a portion of their income until retirement and offers to match that deferment in whole or in part, they are creating new liabilities that will need to be met in the future. While some companies set aside cash, securities, or assets to meet promised benefits, the most tax-efficient financing tool is a life insurance policy with a savings account.
Since the cash value of these policies is equal or nearly equal to the premiums paid, there will be no immediate change to the balance sheets of business owners. Besides, COLI policies used to support benefit offerings are also good for employees by providing additional assurance that the company has secured their deferred return.
