Employer-sponsored life insurance has traditionally
played an important role in an executive's pre-retirement
planning for family and financial obligations. A Company can give its executives the
opportunity to enhance their families' financial security, both pre- and
post-retirement, through ownership
of individual life insurance policies.
It is believed that executives need life insurance benefits of five to seven times
their income to be adequately insured. Traditionally, companies provide life insurance benefits through group
term life. However, group term is
usually phased out or canceled at retirement. There is a high probability that executives will live past
retirement (88% of all employees covered by group life insurance live to age
65). Therefore, since most
employees live past retirement, companies are paying for benefits few survivors
Group Carve-Out Plan
A group carve-out plan provides permanent, portable
death benefits with tax-deferred capital accumulation. With a group carve-out plan the
employer chooses the executive participants who then opt out of the group life
plan. Usually participants retain
only that group life coverage up to the non-taxable amount of $50,000.
The employer provides the additional
death benefit through one of several plan types.
An executive bonus plan also gives executives the opportunity to purchase
permanent life insurance with the employer's help. The executive owns and names the beneficiary of the
policy. The employer pays the executive a bonus, which the executive uses to pay
the policy premiums. The employer deducts the bonus. The executive pays tax on the bonus
Death Benefit Only
Employers also have an alternative to helping
executives purchase their own permanent life insurance policies.
Under a death benefit only plan the employer promises executives a pre- and
post-retirement survivor benefit. The employer purchases and is the beneficiary of corporate owned life
insurance policies on the executives. When an executive dies the corporation pays survivor benefits from
general assets and recovers costs from the policy death benefit