Advanced Underwriting Consultants

CHOOSING THE RIGHT BUSINESS-SPONSORED LIFE INSURANCE PLAN

Introduction

Life insurance professionals who work with closely held business owners must often help choose the right ownership and payment structure for the coverage. In selected cases, fairly sophisticated strategies—such as financed premium, pension-owned coverage or 412 (e)(3) plans—can fit a client’s needs.

However, most instances of business-related permanent life coverage involve choosing between three more pedestrian business sponsored life insurance plans:

1. Bonus plan
2. Split dollar plan
3. Key employee insurance plan

Which one is the right choice for a particular client?

Picking the right kind of business sponsored life insurance plan depends on many factors:

• Is the insured an owner of the company, or a non-owner employee?
• What are the marginal income tax brackets of the company and the insured?
• What is the purpose of the coverage?
• How important is control of the insurance policy for the insured or the company?
• How much negotiating power does the insured have relative to the company?

In this issue, we’ll consider the types of answers that may indicate a preference for one plan over another. We will also identify those circumstances where a client may be better served by purchasing coverage with personal funds rather than business dollars.

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