EXECUTIVE LIFE INSURANCE PLANNING
Kelly Insurance Group provides executive life insurance planning — helping companies and executives understand how split-dollar arrangements, executive bonus plans, corporate-owned life insurance, SERPs, and other executive benefit structures use life insurance to deliver compensation, retention, and retirement benefits to key executives.
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The company pays the executive a bonus in the amount of the life insurance premium. The executive owns the policy personally and pays income tax on the bonus. The company deducts the bonus as a compensation expense. The executive accumulates cash value in a policy they own — not the company.
The premium obligation is split between the employer and the employee. The employer typically funds the bulk of the premium in exchange for a claim on the death benefit or cash value equal to the premiums advanced. The employee receives the remainder of the death benefit. Two structures exist: economic benefit (loan regime) and loan regime — each with distinct tax treatment.
The corporation owns and is the beneficiary of life insurance on key executives or a broad employee group. Death benefit proceeds fund deferred compensation obligations, restore corporate capital, or fund employee benefit programs. COLI requires employee consent and meets specific tax requirements under IRC Section 101(j).
Life insurance is commonly used to informally fund nonqualified deferred compensation arrangements. The company owns the policy and uses the cash value and death benefit to fund its obligation to pay deferred compensation to the executive — either during retirement or at death.
A SERP is a nonqualified retirement benefit promised to a select group of executives, often funded with life insurance. The company owns the policy, accumulates cash value, and uses those proceeds to fund the promised retirement benefit. SERPs are not subject to ERISA's contribution limits, making them attractive for high-income executives who have maximized qualified plan contributions.
Life insurance is used as a retention tool — the executive earns vested benefits in the policy over time, with full benefits contingent on remaining with the company for a specified period. The structure creates a financial incentive for the executive to stay, funded by the life insurance policy's cash value and death benefit.
WHAT DISTINGUISHES EXECUTIVE LIFE INSURANCE FROM STANDARD BUSINESS OR PERSONAL COVERAGE.
EXECUTIVE BENEFIT ARRANGEMENTS REQUIRE ALL ADVISORS AT THE TABLE
Split-dollar arrangements, SERPs, and COLI programs sit at the intersection of tax law, employment law, and insurance. The CPA must model the income tax consequences. The benefits attorney must review the plan documents and ERISA exemption compliance. The insurance advisor must select the right policy type and carrier. No one advisor can cover all three disciplines — these arrangements should not be structured without all three involved.
THE RIGHT POLICY TYPE DEPENDS ON THE ARRANGEMENT STRUCTURE
Executive benefit arrangements frequently use permanent life insurance — whole life or universal life — because the cash value accumulation is an integral component of the benefit design. The specific policy type (whole life for guaranteed cash value, indexed UL for growth potential, variable UL for investment flexibility) should be selected based on the specific benefit objectives, the company's risk tolerance, and the executive's financial planning needs.
PERSONAL COVERAGE IS SEPARATE FROM EXECUTIVE BENEFIT COVERAGE
An executive benefit arrangement addresses the executive's compensation and retention within the company. It does not replace the executive's personal life insurance — the coverage that protects the executive's family independent of the employment relationship. An executive who has a substantial SERP benefit and no personal life insurance has family income protection that is entirely contingent on remaining employed and living long enough to collect. Both programs are needed.
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As an independent broker, Kelly Insurance Group is not captive to any single carrier. We access the full life insurance market — specialty carriers, jumbo underwriting, trust-owned policy specialists — to find the right structure for each client's specific estate planning, business, or personal situation. Headquartered in Pittsburgh, with offices in Los Angeles and Detroit, we serve clients nationwide.
RELATED EXECUTIVE AND BUSINESS LIFE INSURANCE TOPICS
FREQUENTLY ASKED QUESTIONS.
What is a SERP and how does life insurance fund it?
A supplemental executive retirement plan (SERP) is a nonqualified deferred compensation arrangement that promises a select group of executives a defined retirement benefit beyond what qualified plans provide. Life insurance is commonly used to informally fund the company's obligation — the company owns a permanent life insurance policy on the executive, and the cash value and death benefit are used to finance the promised retirement payment.
What is split-dollar life insurance?
Split-dollar life insurance is an arrangement where the premium obligations, death benefit, and cash value are shared between two parties — typically an employer and an employee. Two regulatory regimes exist: economic benefit (collateral assignment) and loan regime, each with distinct tax treatment under IRS Notices 2001-10 and 2002-8. Choosing the wrong structure has significant tax consequences and requires guidance from a tax advisor.
Can the company deduct life insurance premiums paid for executive benefit arrangements?
It depends on the arrangement structure. Under an executive bonus (Section 162) plan, the premium is paid as a bonus to the executive who is taxed on it as compensation, and the company deducts it as a compensation expense. For company-owned life insurance where the company is the beneficiary, premiums are generally not deductible under IRC Section 264(a)(1).
What is corporate-owned life insurance (COLI)?
COLI is life insurance owned by a business on the lives of its employees or executives, with the business as the beneficiary. COLI is used to informally fund deferred compensation obligations, offset the cost of employee benefit programs, and provide key person protection. To qualify for the income tax exclusion on the death benefit under IRC Section 101(j), COLI must meet specific notice, consent, and reporting requirements.
How does an executive bonus (Section 162) plan work?
Under a Section 162 executive bonus plan, the company pays a bonus to the executive equal to the life insurance premium. The executive owns the policy personally, pays income tax on the bonus, and controls the cash value and death benefit. The company deducts the bonus as a compensation expense. A double bonus structure also covers the executive's income tax on the bonus amount.
What is the golden handcuff structure in executive life insurance?
Golden handcuffs refer to executive benefit arrangements that vest over time, creating a financial incentive for the executive to remain with the company. In a life insurance context, the arrangement may provide that the executive earns full access to the policy's cash value or death benefit only after a specified period of continued employment. Departure before the vesting schedule is complete results in forfeiture of the unvested benefit.
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Kelly Insurance Group helps companies and executives structure split-dollar arrangements, SERPs, executive bonus plans, and COLI programs — with the full team of insurance, tax, and legal coordination these arrangements require.
The availability of coverage and eligibility for coverage can depend on numerous factors. We cannot guarantee that all customers, individuals, and businesses looking for coverage will be successful in these efforts when contacting our team. All policy coverages and terms need to be fully reviewed by the respective consumer to ensure the coverage asked for is what is specifically being quoted or provided by any insurance policy. Insurance Policies, Coverage Changes, and their terms and conditions are not bound or altered until written confirmation is provided by one of our licensed team members or underwriters. This page does not offer legal advice, legal opinions, or policy interpretations. Rather, this page is meant as a resource to help provide customers and insurance consumers with additional considerations that may help in their insurance buying or pursuit of insurance information. Kelly Insurance Group does not employ or direct attorneys.
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Disclaimer: Coverage availability and eligibility may depend on many factors, including underwriting review, carrier guidelines, policy terms, state requirements, business operations, risk characteristics, and other information provided during the application or quoting process. Kelly Insurance Group cannot guarantee that every individual, customer, organization, or business seeking coverage will qualify for, receive, or successfully place insurance coverage. All policy coverages, exclusions, conditions, limits, endorsements, and terms should be carefully reviewed by the consumer, insured, or applicant to confirm that the coverage requested is the coverage being quoted, offered, or provided. Insurance coverage, policy changes, endorsements, cancellations, and other policy terms are not bound, changed, confirmed, or altered unless and until written confirmation is provided by a licensed Kelly Insurance Group team member, the applicable insurance carrier, or an authorized underwriter. This page is provided for general informational purposes only and does not provide legal advice, legal opinions, insurance coverage opinions, or policy interpretations. Information on this page should not be relied upon as a substitute for reviewing the actual policy language or consulting appropriate professional advisors. Kelly Insurance Group does not employ, supervise, or direct attorneys.