Critical employee life and disability insurance question - feel v. uncomfortable

[REAL WORLD EXPAT]

Background: Wife works in sales for a small company consisting of 3 sales employees all on commission only compensation, been there 10 years, generates approximately 50% of the company's sales revenue.

The owner (owned business for 30 years and is in her early 60's) asked her today if she would take a medical so she could insurer her under a "critical employee life and disability insurance". When she quizzed her about it she told her it had zero benefit to her (my wife) she's not worried about her dying but she'll (company owner) be able to use it to save tax free for retirement.

I did a bit of research online and though the insurance itself is not too worrying (in fact it kind of makes sense from the owners point of view) the statements she made about it being for retirement has us worried. Though I've not seen any specifics about the policy I'm going to assume for her to maximize the financial benefit my wife would have to die as early as possible into policy term while still working there.

Now I'm not suggesting anything sinister is at play here but the whole set-up makes us very uncomfortable.

Anyone have any experiences with this type of policy or can give us any advice on the matter given the limited information I can provide at this time?

Thanks in advance for you time!

Road Warrior

[Axecleaver]

Creepy! I'm not at all clear on how this allows the business owner to save tax-free for retirement. If the business did collect, or even if they decided to surrender the policy at some future date, wouldn't they just have to pay the money out to the owner in some taxable fashion? Whether it's as regular income, a bonus, or a dividend, it's still taxed.

If I were you, I would want to figure out how it worked. Maybe she's willing to trade you something for this privilege? I'd also be very skeptical of any situation where someone else has a strong financial incentive for me to die. 

[JoJo]

Is this a "Key person" insurance?

https://en.wikipedia.org/wiki/Key_person_insurance

[Catbert]

Just a guess...this may be a whole life policy which builds up a cash value.  The owner can over-fund the policy to build up a cash value.  Later she (owner) can borrow the excess cash value.  At least that's roughly how it works if you bought a whole life policy on yourself. 

If your wife is sorta inclined to do it but also a bit apprehensive, she could speak to the insurance agent.  S/he is making a ton of commission so should be willing to devote the time to explaining it.

[REAL WORLD EXPAT]

  S/he is making a ton of commission so should be willing to devote the time to explaining it.

If there is zero benefit for my wife in the whole deal I can't see why she should bother taking up her free time to listen to any explanation.

She emailed the owner today and politely declines the offer stating some of the reasons we've found out about through research and answer to our post here and on Boggleheads boards.

Thanks!

[REAL WORLD EXPAT]

Thanks every one - wife got a reply from the owner after emailing (so we documented everything) her concerns and the fact she was not willing and we very uncomfortable with the whole idea. Owners reply:

"Understood. My (the owner) accountant is less then thrilled about the idea too, let's forget all about it"