[PB Notebook] Hedge Risks with Group Insurance When Running a Business

Lee In-wook Kyobo Life Financial Planning Center Wealth Manager (WM)

On the 7th, the Supreme Court upheld the original ruling that acquitted former President Kim Byung-sook of Korea Western Power, the primary contractor, who was charged with violating the Industrial Safety and Health Act and causing death by negligence in connection with the death of Kim Yong-gyun at the Taean Thermal Power Plant on December 11, 2018. The Serious Accident Punishment Act, which was enacted in January last year based on the Industrial Safety and Health Act that originated from the so-called ‘Kim Yong-gyun Act,’ initially applied only to businesses with 50 or more employees. Starting January next year, it is scheduled to be expanded to workplaces with fewer than 50 employees (and construction sites with project amounts under 5 billion KRW), but the government is pushing for a grace period.

Regardless of industry, whether manufacturing or service, employee accidents have a significant impact on corporate management. In addition to operational losses due to manpower shortages, unexpected funds such as compensation and consolation payments are also required. Especially if an accident occurs during the early stages of a business that requires significant investment, it can pose a fatal management risk to the company. The risk is even greater if the aforementioned Serious Accident Punishment Act is expanded to apply to workplaces with fewer than 50 employees. Therefore, thorough prior review and preparation are necessary.

Group insurance is a means to manage such economic risks. Unlike individual insurance, group insurance enrolls all employees of a company under a single contract. Because the group itself, not individuals, is the unit of risk selection, premiums are cheaper compared to individual insurance. Additionally, enrollment is convenient with a single premium regardless of employees’ ages, and broad coverage for accident-related incidents is possible. Employers can reduce the risk burden of various industrial accidents that may occur anytime and anywhere at a low cost by subscribing to group insurance.

Many companies have subscribed to group insurance primarily for employee welfare or expense processing purposes, but now there is an increasing use of group insurance to cover civil and criminal settlement payments in the event of serious accidents. In other words, when a serious accident occurs and there is concern about punishment, the corporation is designated as the beneficiary, and the insurance payout from the group insurance in case of an industrial accident can be used as a civil or criminal settlement payment to argue for mitigation of criminal penalties.

It is also advantageous that both the company and employees can benefit. It is useful in terms of enhancing welfare. It can increase employee job satisfaction and improve productivity through psychological stability. Even if employees retire and new employees are hired, the insurance contract can be maintained until maturity by changing the insured without canceling the policy. If the company pays the premiums, the paid premiums can be recognized as welfare expenses up to an annual limit of 700,000 KRW per employee. Death, illness, or injury insurance benefits received by employees covered under group insurance due to unforeseen accidents are excluded from taxable earned income. Whether tax benefits apply depends on who is designated as the beneficiary of the group insurance. Also, coverage details and premium discount rates vary by insurance company. This is why careful comparison and consultation with experts are necessary before subscribing.

Lee In-wook, Wealth Manager (WM), Kyobo Life Financial Planning Center