Case Study: Group Term Carve-Out for a Community Bank

The Challenge

The Bank was looking for another benefit to reward and retain its leadership team.

The Solution

EBN implemented a Group Term Carve-Out (GTCO) and Short-Term Incentive Plan (STIP). The GTCO was originally placed on 16 individuals.  The GTCO “carves-out” a group of key employees from the group term life insurance plan and replaces coverage with a “split-dollar” endorsement on a Bank Owned Life Insurance (BOLI) policy that was issued on a “Guaranteed Issue” (GI) basis.  The BOLI also informally financed the cost of the STIP.

The Results

The GTCO provides a “win-win” for the Bank and the employees. The Bank benefits with lower group term life premium expense (cost savings), and the employees incur less imputed income for tax purposes.

The plan was written on a GI basis (i.e. no insurance health exam), and the Bank can add additional executives to the plan in the future under the same GI basis.

The STIP provided an extra incentive for the key executives to remain at the Bank (i.e. “golden handcuff plan”). The STIP was based on both the Bank’s and executive’s performance. 

Group Term Carve-Out Analysis