Non-Qualified Survivor Benefits

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 will receive.

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.

Executive Bonus
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