Life Insurance Helps Ease Pain at the Pump

With the high price of gasoline, it came as no surprise to see who is being hurt in a very big way the companies that make gas-guzzling recreational vehicles. The Wall Street Journal reported that Coachman Industries and Fleetwood Enterprises are experiencing slumping sales in large part because of the $4 gallon of gas, and have been forced to take what the newspaper called “drastic” measures to ease the strain.

Coachman’s decision caught the Insurance Word Blog’s attention. To remedy its cash shortage caused by a 40-percent decline in sales over three years, Coachman borrowed against the cash value of the life insurance policies it holds on its highly compensated employees and retirees.Let’s first point out that this a perfectly legitimate use of what is called company-owned life insurance, or COLI. COLI is an insurance product used by employers both to protect against the financial cost of losing a “key” employee and provide coverage on a wider range of employees to help fund employee and retiree benefits. They can also be used in the event of an emergency, and what Coachman faces qualifies as one.

The Coachman case illustrates the “living” benefits of permanent life insurance, and they can be enjoyed by individuals as well as companies. I have heard of people who have borrowed against the money that accumulates inside their permanent life insurance policies to pay off debt, pay for a daughter”s wedding, or cover college tuition and expenses. (It’s smart, although not mandatory, to pay back the money borrowed. Otherwise, the amount borrowed is deducted from the death benefit paid to the beneficiary when the policyholder dies.)

I got the sense from reading the Journal story that the reporter had the Coachman CEO Rick Lavers on the defensive, as if accusing the company of doing something unethical or illegal. I’m guessing the reporter doesn’t think life insurance is intended to be used in this way. But, as Mr. Lavers said rightly, [The policies] provide adequate sources of liquidity for the company’s current and foreseeable operations.

Put in a less corporate way, by tapping the life insurance policies, the company will use the extra cash to figure out a way through the mess it faces, and stay in business. That must be a relief to the thousands of current and retired employees, and their families, who obviously have a great deal at stake in the company’s success.