Is the Nike Life Insurance Benefit a Good Deal? Uncovering the Hidden Costs
We wanted to explore a common question that we hear from our Nike clients: “Is the life insurance benefit offered through Nike a good deal?” We will explore the hidden costs that exist within this benefit and compare it to alternatives to evaluate whether or not it is a good deal.
The Benefit
Nike provides a basic life insurance death benefit of half your annual salary up to a maximum of $500,000, paid by the company.
Nike also provides employees with the opportunity to purchase additional supplemental life insurance in an amount up to 5½ of your salary up to a maximum of $3.5 million.
If you combine basic life insurance and supplemental life insurance, the maximum amount you will receive is 6 six times your salary up to a maximum of $4 million of death benefit.
Nike does provide employees with a benefit credit to purchase up to 1½ times your salary of supplemental life insurance. The benefit credit is, however, subject to income taxes.
On the surface, the Nike supplemental life insurance sounds like a good deal, right? Before we can make that determination, we need to look at hidden costs as part of this equation.
Hidden Cost #1 - Imputed Income
Life insurance through your employer with a death benefit above $50,000 is considered a taxable fringe benefit. The IRS puts a dollar value on this benefit called “imputed income," and the Imputed Income is taxed as wages, making it subject to federal, state, Social Security, and Medicare taxes in the same way that your salary is taxed.
If you look at your Nike paystub, this item will show up under the category of “Add’l Taxable Other Compensation.” Within that category, you will see a line item called “Imputed Income -Life.”
The taxes that are created from the imputed income create an additional cost to the life insurance coverage that is typically missed and not considered. The higher your income tax bracket, the more punitive the imputed income becomes.
Hidden Cost #2 - Premium Age Bands
It is also essential to understand that the premium you are currently paying for your supplemental life insurance will not stay the same and will likely increase over time. The primary reason for the increase is that premiums are subject to “age bands.” Age bands provide a set cost for anyone within a 5-year age increment. For example, there is an age band for ages 30-34, another for ages 35-39, another for 40-44, and continues up to age 70+. The older you are, the higher the cost in that age band. The premium cost that you thought was good may quickly become expensive as you reach new age bands.
The back-up plan
Given the “Hidden Costs” that we shared, how do you know when the supplemental life insurance is a good deal or not? To determine that, we need to compare it to the possible alternatives. At Human Investing, we believe that the only appropriate option is inexpensive individual term life insurance.
Individual term life insurance is typically purchased for a set number of years (10, 15, 20, 30 years), and the premium during that time is locked in and guaranteed not to change. Before you are approved for the policy and the premium cost is determined, you will typically be required to go through a medical underwriting process, including a 20-minute medical exam, blood and urine samples, and possibly medical records from your doctor.
When the Nike Supplemental Life Insurance Benefit is a Favorable Deal
Simplicity and Time Savings are More Important than Lower Cost - The supplemental life insurance is easier to obtain than individual term life insurance. During open enrollment, you can elect up to $500,000 of death benefit just by clicking “yes.” An amount above $500,000 requires you to fill out a health statement, but that is still much easier than going through the medical underwriting needed for individual term life insurance.
Current Medical Issues - If you have any pre-existing medical issues that would either cause you to be declined from individual term life insurance or create cost-prohibitive rates, the supplemental plan may be the best way for you to obtain affordable life insurance coverage since you can avoid the medical underwriting.
Coverage Only Needed for a Short Time (Less than 5 Years) – If you think you only need life insurance coverage for a short time, supplemental life insurance can be the right choice since the cost is low for the short-term. In our analysis, coverage becomes expensive in the intermediate to long-term due to the ongoing drag from hidden fees we discussed. So how long do you need life insurance coverage? Generally, income earners need life insurance to replace future income for their family for as long as they were planning to work. The one exception is if they have saved enough funds to replace that future income for their family adequately. The best way to determine this is to examine this within personalized financial planning projections.
When the Supplemental Life Insurance Benefit is an Unfavorable Deal
You Have Average Health or Better – With individual term life insurance, one benefit of medical underwriting is that you can reap the benefits of being healthy. The better your health), the lower your cost may be. Company-sponsored group plans, like the Nike supplemental benefit, base their rate on a broad group that is averaged together, which includes people from excellent health to poor health.
You Need Life Insurance Coverage Over an Intermediate to Long Period of Time (7+ Years) – As we mentioned earlier, our analysis has shown that the cost of individual term life insurance is often much lower than supplemental life insurance by a significant amount. This shows most prominently when coverage is needed for about seven years or longer.
You Want to Maintain Coverage When You Leave Nike – If you leave Nike, it is challenging to maintain the existing coverage, and portability options are limited. With individual term life insurance, you can keep the policy with you wherever you go. Additionally, you will lock in a price based on your health and age when you purchase it. Waiting later to buy it will cost you more since you will be older, and any health issues that might arise during that time may cause the cost to increase further.
It’s Not Too Late to Change
Let’s say that you just completed open enrollment, and you are having second thoughts about the supplemental life insurance coverage you just enrolled in.It’s not too late to change your mind. You can purchase individual coverage and can cancel the Nike coverage mid-year under one of the available exceptions.Simply contact Nike HR and tell them that you have a "Family Status Change," and the status change is "Employee/Spouse/Child/Other Gains Other Coverage."Please keep in mind that we always recommend waiting to cancel any coverage until the new coverage replacing it is fully in place.
Where to Get Individual Term Life Insurance
There are many conflicts of interest in firms that offer life insurance. Therefore, we would recommend that you proceed carefully. Many firms do not shop the market for the best company that fits you. Since many are affiliated with one specific insurance company, they are motivated by commission payouts and sales targets to funnel you to their affiliates. We would also recommend staying away from more expensive cash value life insurance products like whole life and universal life insurance.
At Human Investing, we decided to stop selling commissioned life insurance since we felt strongly that it was a conflict of interest. This decision allows us to act as a Fiduciary 100% of the time. To continue to serve clients well, we instead decided to partner with insurance firms that specialize in the specific type of insurance we believe in and will not try to upsell you on more expensive coverage. If you would like a reference to one of those firms, just let us know, and we would be happy to share that information with you.
We’re here if you have questions
There is nothing fundamentally wrong or bad about Nike’s supplemental life insurance offer. In fact, the Nike benefit is a more generous plan than we have seen at other companies. The real issue is that life insurance offered through employers has hidden costs that can make the coverage expensive. If you have questions or want to better understand how to take advantage of the Nike Life Insurance Plan, you can schedule time with me on Calendly below, e-mail me at marc@humanvesting.com, or call or text me at (503) 608-2968.
