Tackling a spate of departures after bonus – offer life insurance as “deferred bonus" | Article – HSBC VisionGo

Long-term life insurance plans can be your solution to talent retention.
Finance  ·    ·  5 mins read

Retaining talent in today’s competitive business environment could be a bit of a challenge. As an employer, you might have been giving out handsome bonuses every year, but some of your employees might still decide to move on. With the opacity of market value or volatility, even giving out company shares may not be good enough to make your key employees stay. These short-term, conventional talent retention tools don’t seem to be very effective anymore. With employees being the most important asset in a company’s development, employers should make an effort to offer attractive returns, and long-term and stable protection to their employees. 

Long-term life insurance plans can be your solution to talent retention. When employees have the peace of mind while working with you,  your company will grow steadily. 

Can life insurance help retain talent?

Life insurance provides selected employees with dedicated benefits in addition to their regular remuneration, including the portion of the cash value that is available for withdrawal, as well as critical illness protection and death benefit. 

Usually, the employer would agree with the employee that in addition to the annual bonus, the employer would take out a long-term life insurance for the employee. This in effect provides a long-term savings arrangement for the employee, and the longer the years of savings, the higher the cash value that can be accessed.

Let’s take the start-up “i-Invention” as an example. i-Invention would like to retain key executive Maggie through a long-term life insurance plan. Maggie is now 35 years old, with an annual salary of HKD720,000. After discussion with Maggie, the company plans to take out the “HSBC Health Goal Insurance Plan” with HSBC Life, paying a premium of around HKD780,000. By the time Maggie retires at 65, this insurance plan will have accumulated a projected net cash value of as much as HKD3.14 million. 

In other words, if Maggie stays with i-Invention in the long run, she will be entitled to a significant sum of deferred bonus through life insurance. i-Invention will also succeed in retaining its talent. 

The best part about life insurance is its autonomy and flexibility. The employer can set out basic terms and conditions with their legal team in accordance with the circumstances of the business and that of individual employees, and then negotiate the details with each employee. With that, the employer will be able to come up with an attractive life insurance plan tailor-made for each key employee, with dedicated terms including annual premium, premium payment period, distribution of cash value and arrangements of life and critical illness protection within the policy. 

In these life insurance plans, the employer can be the policyholder, and the employee the life insured. The policy can also be transferred to the employee at some point. When the employee becomes the policyholder, they can then withdraw cash value or get a policy loan to meet their personal needs. 

How does it work? 

When it comes to long-term insurance, there is a range of products to choose from. Companies can consult an Insurance Sales Manager about the options, taking into consideration their specific needs. Below is a hypothetical case as a general summary and illustration.

Why long-term life insurance? How does it differ from MPF and other benefits?

From the employer’s perspective, the flexibility that comes with a long-term life insurance policy allows the company to hire and retain individuals by offering attractive benefits in line with the company’s development and needs. 

To the employee, compared to receiving annual bonus and company shares, they can benefit from the long-term saving brought by the potential of the accumulated cash value of the life insurance policy, which could be  also more stable. Very often, there are long-term life insurance protection and savings elements in a life insurance policy, and the cash value might appreciate faster over time. This cash value can be withdrawn for retirement or to meet other financial needs.

In addition, the life insurance component in a long-term life insurance policy costs less than what employees will otherwise have to pay if they take out such policy at their own expense. The way that cash value is received is also more flexible than the Mandatory Provident Fund (MPF). In general, withdrawal from the MPF can only be made when an employee reaches the retirement age of 65. Whereas in a long-term life insurance plan, the employee can agree with the employer on the arrangement for cash value distribution, or even be entitled to guaranteed annuity payment and guaranteed retirement bonus. 

If the employer transfers the policy ownership to the employee, the employee can even appoint specific persons as the beneficiaries of the policy, such that in the unfortunate event of critical illness or death of the employee, the insurance proceeds will be made to the designated beneficiaries. 

Can you give an example to illustrate how a company may make good use of a life insurance policy for talent retention?

As the needs of every company and the circumstances of every employee are different, the arrangements for every life insurance plan could also be different, and should be agreed between both parties. Here’s an example just for reference: 

In a bid to retain the capable employee Mark, his employer took out a life insurance savings plan for him as key executive benefit. The company and Mark agreed that upon certain years of service, Mark will be entitled to partial or even full cash value of the policy. As this cash value will grow over time, as long as Mark continues to work hard for the company wholeheartedly, the longer he stays, the higher the returns. 

Meanwhile, if Mark unfortunately passes away, his designated beneficiaries and the company will all be compensated according to the agreed ratio (for example, 40% for the employer and 60% for his beneficiaries). This ratio can be increased with Mark’s years of service. 

What should I do with the life insurance plan if the employee leaves the company?

In general, there are two ways to handle this situation. One option is to terminate the policy, and release the cash value as agreed previously with the departing employee. However, there is long-term savings value in a life insurance policy, and its cash value appreciates with time. Terminating the policy early in effect writes off the significant cash returns to be accumulated in the latter part of the policy. 

Alternatively, from the employer’s perspective, since the key role will eventually have to be filled by a new employee, the company can make an agreement with the new employee to appoint him/ her as the new life insured person of the existing policy. Details such as designated beneficiaries can be amended as well without incurring any extra fees. For the payment to the departing employee, in view of the hidden costs of a partial or full surrender, the employer should avoid withdrawing the cash value early, but instead use their own funds to pay the departing employee the agreed cash value.

In short, employers who wish to retain their talents for the company’s stable growth in the long run may consider the long-term plan of taking out life insurance for their key employees. 

Important Notes: 
1. The life insurance product mentioned in the article is underwritten by HSBC Life (International) Limited (“HSBC Life”). 
2. HSBC Life is authorised and regulated by the Insurance Authority. 
3. The Hongkong and Shanghai Banking Corporation Limited is registered in accordance with the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong) as an insurance agency of HSBC Life for the distribution of life insurance products in the Hong Kong SAR. 
4. The information shown in this document is for reference only and shall not constitute any recommendation or advice to any person or prospective customer. You may consider to seek independent professional advice on talent retention. The information in this document is not a substitute for professional advice. You should not make any decision or act solely on the basis of any information provided in this document without seeking specific professional advice. 
5. This document contains general information only. It does not constitute any offer for any insurance product. For product details, terms, conditions and exclusions, please refer to the relevant policy contracts, policy provisions, product brochures and policy proposals. 
6. The product features stated above could be from more than one individual life insurance plan. Please note that insurance product features vary among different plans and are subject to underwriting approval. Please refer to the Product Brochure of the relevant insurance plan for more details.