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Lecture Employee benefits and retirement planning - Chapter 13: Life insurance in a qualified plan

This chapter begins by investigating when the use of life insurance in a qualified plan may be indicated, followed by a discussion of advantages and disadvantages. After this, the chapter has an extended section on how life insurance may be used in both defined benefit and defined contribution plans. | What is it? Qualified plan purchases and owns life insurance on employee using deductible employer contributions to the plan to fund purchase Copyright 2009, The National Underwriter Company When is it indicated? large number of employees covered under qualified plan have unmet life insurance needs have gaps or limits on other company plans that provide death benefits want contribution option that would provide tax deduction when qualified plan is over funded or close to full funding limitation Copyright 2009, The National Underwriter Company When is it indicated? highly compensated plan participants face substantial estate taxes on death benefits life insurance could provide plan participants an additional option for investing their plan accounts employer wants secure funding vehicle for plan Copyright 2009, The National Underwriter Company Advantages favorable tax treatment as compared with individual life policies provided by employer outside qualified plan or personally owned life insurance safe investment predictable plan costs Copyright 2009, The National Underwriter Company Advantages retirement benefits guaranteed by insurance company as well as employer death proceeds less policy cash values (pure insurance portion of policy) not subject to income tax may be able to structure insured plan death benefits to avoid estate tax at participant’s death Copyright 2009, The National Underwriter Company Advantages exemption of fully insured from minimum funding standards and actuarial certification requirements reduces administrative costs and reduces complexity of defined benefit plan some life insurance companies provide low cost installation and administrative services if plan uses their investment products, further reducing cost Copyright 2009, The National Underwriter Company Disadvantages relatively low rate of return policy expenses and commissions may be greater than for comparable investments Copyright 2009, The National . | What is it? Qualified plan purchases and owns life insurance on employee using deductible employer contributions to the plan to fund purchase Copyright 2009, The National Underwriter Company When is it indicated? large number of employees covered under qualified plan have unmet life insurance needs have gaps or limits on other company plans that provide death benefits want contribution option that would provide tax deduction when qualified plan is over funded or close to full funding limitation Copyright 2009, The National Underwriter Company When is it indicated? highly compensated plan participants face substantial estate taxes on death benefits life insurance could provide plan participants an additional option for investing their plan accounts employer wants secure funding vehicle for plan Copyright 2009, The National Underwriter Company Advantages favorable tax treatment as compared with individual life policies provided by employer outside qualified plan or .