How to Use Life Insurance as an Executive Benefit
By:  Steve Kobrin, LUTCF  February 6, 2017
As a business owner, you invest copious amounts of time, money and energy into your employees. Don’t you want your investment to pay off? Employee turnover can be extremely costly to your business, and this is especially true when it comes to key executives.
The Costs of Turnover for the Business

When you lose indispensable employees, money has to be reallocated to provide for recruiting, training, orientation and management of a new hire. It can also take a lot of time to ensure that you find someone who is the best fit for the role. The longer the recruitment process takes, the more the business is exposed to a setback. (For related reading, see: The Cost of Hiring a New Employee.)

This is why companies spend significant amounts of money on compensation packages for key executives. The longer they can get these men and women to stay in their employment, the better return they get on their investment in them. Employers are always looking for benefits that can be legitimately offered to selected personnel only. How does life insurance fit into this equation?
Life Insurance as a Benefit

Life insurance is frequently at the top of this select benefit list. If a number of factors fall into place, then the use of this product can be a big win for both the executive and the firm. Here are some factors that will ensure the success of life insurance for this purpose:
The executive should have a need for life insurance for personal reasons, such as family protection and retirement planning.
The executive qualifies for a policy that can provide both significant cash accumulation and a sufficient survivor benefit.
The executive is willing to let the firm control policy proceeds.

If your executives meet these criteria, what are some tips to take into consideration?
The Importance of Underwriting

The lower the cost of the insurance, the higher cash value and survivor benefit a policy will provide. If the executive qualifies for a comparatively low rate, then additional money can be paid into the policy for use in retirement, as well as for the protection of beneficiaries. If the executive has a chronic illness or another higher-risk factor that drives up the cost of coverage, a policy may still be a worthwhile bonus from the employer. Be sure to contact your life insurance provider to talk through any extenuating circumstances and how they could affect the policy. (For related reading, see: How Cash Value Builds in a Life Insurance Policy.)
Seek Advice on Premium Payments

The whole point of this benefit is for the employer to subsidize the cost of a life insurance policy that can have a major impact on the life of the executive. Because these policies can cost substantial amounts of money, the employer will take on a considerable expense in financing them. Make sure your financial experts talk to your insurance advisor about how to minimize the tax impact for both your firm and your executive. (For related reading, see: Understanding Taxes on Life Insurance Premiums.)
Implement Sensible Policy Controls

The primary purpose of providing this benefit is to lock executives into a commitment that protects the business. What kind of stipulations can be applied to ensure the benefit pays off? One option is to build controls into the executive’s contract that give access to increased policy benefits over time. Secondly, provisions can be made to reimburse the employer for the expense while still providing the executive with a lucrative cash account and survivor benefit. Speak to your business advisor to review your options in this regard.

You build your business to be successful and a major piece of that success is in holding onto key personnel. Don’t overlook the importance life insurance can play to ensure loyalty from your chief executives. (For more from this author, see: How to Buy Life Insurance With an Alcohol History.)
Read more: How to Use Life Insurance as an Executive Benefit | Investopedia

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