Business Insurance

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What InsuranceQuotesPro Does

We provide cheap business insurance quotes, business insurance information and unparalleled access to trusted insurance agents from some of the most reputable insurance companies.

Consider the following questions and strategies for your business.

 

Each of these strategies features potential tax savings for you, your business, your heirs, and/or your employees, in addition to the security of a death benefit. 

Why Do I Need Business Insurance? 

Business insurance can protect you from the unexpected costs of running a business - no matter what the size.

Accidents, natural disasters, and lawsuits could run you out of business if you’re not protected with the right type of insurance.

How Can Life Insurance Benefit My Business?

Life insurance if structured correctly, can provide your business with many different benefits, such as asset protection, market risk protection and it can be used as a tax-free wealth building vehicle.

Business Insurance For Your Business 
Below, decide what type of insurance is best for you and your business. Then speak with a local insurance agent in our network to find the coverage that works best for your business. 
General liability Insurance - Any business
This coverage protects against financial loss as the result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.
Product liability insurance - Businesses that manufacture, wholesale, distribute, and retail a product.
This coverage protects against financial loss as a result of a defective product that causes injury or bodily harm.
Professional liability insurance Businesses that provide services to customers.
This coverage protects against financial loss as a result of malpractice, errors, and negligence.
Commercial Property Insurance - Businesses with a significant amount of property and physical assets.
This coverage protects your business against loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism.
Home-based Business Insurance - Businesses that are run out of the owner’s personal home.
Coverage that’s added to homeowner’s insurance as a rider can offer protection for a small amount of business equipment and liability coverage for third-party injuries.
Business owner's policy - Most small business owners, but especially home-based business owners.
A business owner’s policy is an insurance package that combines all of the typical coverage options into one bundle. They simplify the insurance buying process and can save you money.
Life Insurance For Your Business
Below are life insurance strategies you can use to accumulate retirement income
and plan for business succession - Selling your business interest
 
Strategies For: Retirement

Ken S., 50, owns an designing firm that employs 12 people. He wants to retire in 15 years, but he has limited 401(k) accumulation and is unsure what his business might be worth. Ken’s big worry is that he and his wife, Linda, 48, will not have enough income to retire anytime soon.

A life insurance retirement plan may help John supplement his retirement income.
A one-way buy-sell may help John sell his business to a key executive.
A qualified combo plan may help John
catch up his retirement savings.

Qualified Combo Plan

A qualified combo plan is a retirement income accumulation strategy using life insurance that allows business owners to take advantage of the cross-testing provisions that exist for meeting the nondiscrimination requirements established for qualified plans.6 Business owners with more than 10 employees may find the qualified combo plan attractive because the split-funded benefit plan may be implemented in many cases primarily for the business owner.8

Business owners who already have 401(k) profit-sharing plans in place may be able to implement a split-funded defined benefit plan primarily for themselves and maintain the 401(k) profit-sharing plan for the remainder of their eligible employees. For business owners who do not have a qualified plan in place, the qualified combo plan may be a sensible alternative to offering a pure defined benefit plan since the investment risk for the 401(k) profit-sharing plan is born by the individual participants, whereas the investment risk for the defined benefit plan is born by the business.

How it works:

  • The business establishes both a 401(k) profit-sharing plan (if one has not already been established) and a split-funded defined benefit plan, and makes tax-deductible contributions to both plans to fund the participant’s retirement benefits.9

  • Portions of the business’ contributions to both plans are used to pay premiums on life insurance policies insuring the participants’ lives.10

 

  • Since the 401(k) profit-sharing plan or the split-funded defined benefit plan will be the owner and beneficiary of each life insurance policy, life insurance death benefits will be paid to the plan if a participant dies prior to retirement.

 

  • If a participant dies before retirement, his or her heirs will receive a survivor benefit consisting of the vested retirement balance. In the case of an insured participant, this survivor benefit will include the life insurance death benefit received by the plan. If the participant included the cost of current life insurance protection in his or her income, the heirs will receive a portion of the survivor benefit free from income taxes.* In the case of a profit-sharing plan participant, this survivor benefit generally will be limited to the amount of funds currently in the plan.

 

  • Once a participant retires, he or she may begin receiving taxable retirement income benefits from the plan. At retirement, the participant may surrender the life insurance policy, purchase the life insurance policy from the plan, or take the policy out of the plan as a taxable distribution.11 Once the life insurance policy is outside of the qualified plan, the insured can access the policy’s cash value to supplement his or her retirement income.

 

Qualified Plans with Life Insurance

Qualified plans (specifically 401(k) profit-sharing plans) are an important part of nearly everyone’s diversified retirement accumulation strategy. At the same time, life insurance can be an important part of a 401(k) profit-sharing plan. In this strategy, the participant (business owner and/or employee) directs the qualified plan to use a portion of his or her retirement balance to fund a life insurance policy on his or her life.12 By placing the life insurance policy inside the qualified plan, the participant is able to use pre-tax dollars to pay the life insurance policy premiums.

 

This arrangement may allow the participant to pay larger policy premiums, resulting in a potentially larger death benefit than would be possible if the participant was forced to take a taxable withdrawal from the plan in order to purchase the policy.

How it works:

  • The plan trustee, with the consent of the participant, uses qualified plan assets to purchase a life insurance policy on the participant.

  • While the life insurance is in the qualified plan, the participant will incur a cost for the death benefit he or she is being provided. This cost will be imputed to the participant as taxable income.

  • The qualified plan will be the owner and beneficiary of the policy and will receive the death benefit. The life insurance death benefit paid to the qualified plan will then pass on to the participant’s heirs. A portion of the death benefit proceeds received by the heirs may be income tax-free.*

  • At the participant’s retirement, he or she may surrender the life insurance policy, purchase the life insurance policy from the plan, or take the policy out of the plan as a taxable distribution.11 Once the life insurance policy is outside of the qualified plan, the participant can access the policy’s cash value to supplement the qualified plan distributions for retirement income.

* For federal income tax purposes life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a) (1). In certain situations however life insurance death benefits may be partially or wholly taxable. Situations include but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualities for an exception under IRC Sec. 101(a)(2) (i.e. the “transfer-for-value rule”) arrangements that lack an insurable interest based on state law and a business-owned policy unless the policy qualities for an exception under IRC Sec. 101(j).

 

Life Insurance Retirement Plan

A life insurance retirement plan (LIRP) is a commonly used and easily implemented life insurance- based supplemental retirement income accumulation strategy. The life insurance policy serves the dual purpose of providing death benefit protection for a beneficiary chosen by the policyholder as well as the potential to provide supplemental retirement income through the policy’s cash value. For individuals who cannot solely rely on their business or the government to provide retirement benefits, a LIRP offers a self-contained and independent alternative to help supplement retirement income.

 

How it works:

  • The business owner purchases a personally owned cash value life insurance policy on his or her life.

  • If the life insurance policy is properly structured, the cash value of the life insurance policy will

       grow tax-deferred.

  • At the insured’s retirement, he or she may take tax-free loans or withdrawals from the policy’s

       cash value to supplement his or her retirement income.2

  • At the insured’s death, a bene ciary chosen by the insured will receive the life insurance policy’s

       death benefit income tax-free.*

One-Way Buy-Sell (also a strategy for selling the business)

The one-way buy-sell is designed for the sole owners of businesses who may find buy-sell planning difficult because of the lack of co-business owners to buy or take over the business should the business owner die or want to retire. Taking the place of the buyer in this design is a key executive to whom the existing business owner wishes to pass the business. The one-way buy-sell ensures the business transitions from the business owner to the key executive.

How it works:

  • The business owner and the executive enter into a one-way cross purchase agreement that requires the executive to purchase the business owner’s interest in the business for an agreed upon price at the business owner’s death.

  • To fund this purchase obligation, the executive purchases a life insurance policy on the life of the business owner. The executive pays the policy premiums and will be the policy beneficiary. To assist with the premium payments, the business may provide the key executive with a taxable bonus or a series of taxable bonuses.

  • At the business owner’s death, the executive receives the death bene t proceeds income tax-free.*

  • The executive applies the death benefit proceeds toward the purchase of the business owner’s interest in the business.

 

Business-Financed Life Insurance

A business-financed life insurance arrangement is a way for a business owner to accumulate retirement income using the value of his or her business. A loan from the business to the business owner is used to purchase a life insurance policy.3 In many cases, a third-party lender provides the loan to the business owner. If structured properly, the life insurance policy can be accessed by the business owner as a source of supplemental retirement income.

How it works:

  • The business gets a loan or a line of credit from a lender. As collateral for the loan, the business pledges a portion of assets (potentially including its accounts receivable). The lender may le a Uniform Commercial Code Financing Statement with the Secretary of State where the business is located that provides the lender a priority claim over other creditors for the accounts receivable pledged.1†

  • Over time, the business distributes the loan proceeds to the business owner as a loan.4 The business-provided loan will require the business owner to pay interest to the business and give the business a source of funds to pay the interest on its loan from the lender.

  • The business owner uses the loan proceeds from the business to pay premiums on a personal life insurance policy. A portion of the policy cash value and death bene t may be assigned to the lender as secondary collateral for the loan.

  • When the business owner retires, both loans are repaid and the collateral assignment is released from the policy. In many cases, the cash value of the life insurance policy is the primary source of funds for the repayment of the loans. The business owner may then use the policy cash value to supplement his or her retirement income through policy loans and withdrawals.

  • Upon death of the business owner, the death bene t proceeds in excess of what is needed to repay the third-party lender (if the loan has not been repaid) are distributed to the beneficiaries income tax-free.*

 

Accounts Receivable Financing

An accounts receivable financing arrangement allows a business owner to use his or her business to accumulate retirement income. In this strategy, a business owner uses the business’ accounts receivable as collateral for a personal loan (which also may protect these assets from unwanted creditors1†) via a third-party lender. The business owner then uses the loan to pay the premiums for a life insurance policy, which may be pledged to the lender as secondary collateral for the loan. After the loan has been repaid, the business owner can access the cash value of the life insurance policy to supplement his or her retirement income.

How it works:

  • The business owner receives a loan from a third-party lender.4

  • The business pledges a portion of its accounts receivable as primary collateral for the loan. The

       lender may file a Uniform Commercial Code Financing Statement with the Secretary of State where the business is located, providing the                lender a priority claim over other creditors for the accounts receivable pledged.

  • The business owner pays interest on the loan as a nondeductible personal expense, although the business may pay the owner a taxable bonus to assist in paying the interest due on the loan.

  • The business owner uses the borrowed money to purchase a life insurance policy, usually assigning a portion of the cash value and death benefit of the policy as secondary collateral for the loan. This additional security may permit the lender to increase the amount it is willing to lend or provide more favorable terms for the loan.

  • When the business owner retires, the loan is repaid primarily using the business’ outstanding accounts receivable.

  • The business may receive a tax deduction for repaying the loan on behalf of the business owner for whom the loan repayment is considered taxable ordinary income.

  • When the loan is repaid, the lender releases the assignment on the life insurance policy and the business owner may choose to use the policy cash value to supplement his or her retirement income through tax-free policy withdrawals and loans.2

For federal income tax purposes life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a) (1). In certain situations however life insurance death benefits may be partially or wholly taxable. Situations include but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e. the “transfer-for-value rule”) arrangements that lack an insurable interest based on state law and a business-owned policy unless the policy qualities for an exception under IRC Sec. 101(j).

† Business-Financed Life Insurance and Accounts Receivable Financing are retirement strategies using life insurance. When a business loan is formally secured by collateral (e.g. a Uniform Commercial Code Filing for personal property or a recorded property deed for real property) for a loan from a third-party lender, the assets securing the loan may be potentially protected from unsecured creditors.

InsuranceQuotesPro is not affiliated with any third-party lenders.

 

Split-Funded Defined Benefit Plan

For business owners close to retirement and behind on retirement savings, a split-funded defined benefit plan is an effective method for catching up on their savings due to the age-weighted contributions allowed under the plan.

 

A split-funded defined benefit plan is a qualified plan designed to provide the participant with a stated benefit amount at retirement.5 Typically, when a defined benefit plan participant dies, the plan pays the beneficiaries the account balance. The account balance may be insufficient for the family’s needs, but if life insurance is added to the defined benefit plan, the participant’s beneficiaries receive the life insurance death benefit.6 Generally, a split-funded defined benefit plan will allow a business to make much larger contributions to the plan than it could make to a defined contribution plan (such as a 401(k) profit-sharing plan).

How it works:

  • The business establishes a split-funded defined benefit plan and makes tax-deductible contributions to the plan to fund various investment choices and life insurance.

  • A portion of the business’ contribution will be used to pay premiums on a life insurance policy insuring the participant’s life. The plan will be the owner and beneficiary of the life insurance policy. While covered by current life insurance protection, the participant must report the current cost of life insurance protection as taxable income each year.

  • The split-funded defined benefit plan is the owner and beneficiary of the life insurance policy. Should the participant die prior to retirement, the life insurance death benefit is paid to the plan.

  • Upon the participant’s death, the split-funded defined benefit plan provides a survivor benefit to the heirs. This survivor benefit includes the life insurance death benefit received by the plan. If the participant included the cost of current life insurance protection in his or her income, the heirs will receive a portion of the life insurance death benefit free from income taxes.*

  • If the participant retires prior to death, he or she may begin receiving taxable retirement income benefits from the plan. At retirement, the participant may surrender the life insurance policy, purchase the life insurance policy from the plan, or take the policy out of the plan as a taxable distribution.3 The participant will have basis in the policy equal to the cost of current life insurance he or she has incurred. This basis may reduce the value of the policy for the purposes of a distribution from the qualified plan. Once the life insurance policy is outside of the qualified plan, the insured can access the policy’s available cash value to supplement his or her retirement income.

* For federal income tax purposes life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a) (1). In certain situations however life insurance death benefits may be partially or wholly taxable. Situations include but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualities for an exception under IRC Sec. 101(a)(2) (i.e. the “transfer-for-value rule”) arrangements that lack an insurable interest based on state law and a business-owned policy unless the policy qualities for an exception under IRC Sec. 101(j).

 
 

Strategies For: Selling the Business

Tom M., 60, co-owns Tech X, a software company that employs 25 individuals, including two of his three children. Looking to retire in a few years, Tom is concerned about the future ownership of the business, what will happen to his family’s income if he were to die, and how to treat his children equitably if he decides to sell his portion to the two who work with him at the business.

A one-way buy-sell may help Tom transition his business to a key executive if his children decide not to buy the business or only one of them decides to buy it.
A family buy-sell arrangement may help Tom pass his portion of the business to his two children who work with him and also treat his other child equitably.

One-Way Buy-Sell 

The one-way buy-sell is designed for the sole owners of businesses who may find buy-sell planning difficult because of the lack of co-business owners to buy or take over the business should the business owner die or want to retire. Taking the place of the buyer in this design is a key executive to whom the existing business owner wishes to pass the business. The one-way buy-sell ensures the business transitions from the business owner to the key executive.

How it works:

  • The business owner and the executive enter into a one-way cross purchase agreement that requires the executive to purchase the business owner’s interest in the business for an agreed upon price at the business owner’s death.

  • To fund this purchase obligation, the executive purchases a life insurance policy on the life of the business owner. The executive pays the policy premiums and will be the policy beneficiary. To assist with the premium payments, the business may provide the key executive with a taxable bonus or a series of taxable bonuses.

  • At the business owner’s death, the executive receives the death bene t proceeds income tax-free.*

  • The executive applies the death benefit proceeds toward the purchase of the business owner’s interest in the business.

 

Family Buy-Sell

A family buy-sell is a cross purchase arrangement designed to address issues unique to family-run businesses. Through it, business owners can address the financial security of their spouses in case of the business owner’s death and ensure that the family run business continues to be run by the family members who have kept it a successful operation.

How it works:

  • The business owner and a family member enter into a cross purchase arrangement that requires the family member to purchase the business owner’s interest in the business for an agreed upon price at the business owner’s death.

  • To fund the purchase, the family member purchases a life insurance policy on the life of the business owner. The business may provide the family member with a taxable bonus or a series of taxable bonuses to assist with the premium payments.

  • At the business owner’s death, the family member receives the death benefit proceeds income tax-free* and applies the death benefit proceeds toward the purchase of the business owner’s interest in the business from business owner’s spouse.

 

Cross Purchase

A cross-purchase arrangement requires departing business owners or the estates of deceased business owners to sell their interest in the business at an agreed price. This arrangement may allow for the continuity of management, a source of income for the decedent business owner’s family, and a clear direction for future ownership of the business. Life insurance can be an ideal funding vehicle for the cross-purchase.

How it works:

  • The business owners enter into a cross purchase agreement requiring them to purchase an exiting or decedent business owner’s interest in the business upon a triggering event (e.g. retirement, disability, death).

  • To fund their purchase, the business owners purchase life insurance policies on the lives of the other business owners, with the business owners as the owners and beneficiaries of the respective policies.

  • Upon a business owner’s exit, the remaining business owners can use the policies’ cash value for a lifetime buyout.

  • At the first business owner’s death, the business owners receive the life insurance death benefit proceeds income tax-free* and apply the death benefit proceeds toward the purchase of the decedent business owner’s interest in the business.

 

Stock Redemption

A stock redemption plan is a type of business continuation plan that in many cases is best suited for a business with four or more business owners.13 A stock redemption requires a business owner (or the business owner’s estate) to sell all interest in the business and the business to buy it. A properly executed stock redemption arrangement may allow for continuity of management, a source of income for the decedent business owner’s family, and a clear direction for future ownership of the business. Life insurance may be an ideal funding vehicle for a stock redemption plan.

How it works:

  • The business and the shareholders enter into a stock redemption agreement requiring the business to purchase the shareholders’ interests in the business for an agreed upon or determinable price upon the occurrence of a triggering event (e.g. retirement, disability, death).

  • The business will purchase a life insurance policy on each of the business owner’s lives to fund the purchase obligation. The business will pay the premiums and will be the owner and beneficiary of the policy.13

  • Upon a business owner’s retirement (or other exit from the business during his or her lifetime), the business can use the policies’ cash value to effectuate a lifetime buyout.14

  • At the business owner’s death, the business will receive the death bene t proceeds income tax-free.*

  • The business will apply the death benefit proceeds toward the purchase of the decedent business owner’s interest in the business from the decedent’s estate.15

 

Insured Controlled Cross Purchase

An insured controlled cross-purchase arrangement is a type of business continuation plan that requires departing business owners or the estates of deceased business owners to sell their interest in the business at an agreed upon price utilizing life insurance policies that are owned by the insureds. This arrangement allows for the continuity of management, a source of income for the decedent business owner’s family, and a clear direction for future ownership of the business.

How it works:

  • The business owners enter into a binding buy-sell agreement for the purchase and sale of their business interest. Additionally, the business owners enter into private endorsement split-dollar agreements.

  • Each business owner purchases a life insurance policy insuring his or her own life.

  • Each business owner endorses a portion of the net amount at risk of his or her policy to the others.

  • Depending on the split-dollar structure, the business owners may pay premiums equal to the reportable economic benefit on the portion of the death benefit endorsed to him or her, or merely pay income tax on that amount.

  • Upon a business owner’s retirement (or other departure from the business during his or her lifetime), the remaining business owners can use the policies’ cash value for a lifetime buyout; or the split-dollar agreements may be terminated and the life insurance policies’ cash value may be used as a source of retirement income.

  • At the death of one of the owners, both the owner’s estate and the surviving owners receive their portions of the policy death benefit income tax-free.*

  • Under the terms of the buy-sell agreement, the living owners apply the death benefit proceeds toward the purchase of the decedent owner’s interest in the business.

 

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Endnotes

1 State law may provide life insurance and annuities with certain asset protection benefits. As a general rule, a debtor may not transfer property with the intent to avoid debt due to his creditors. The laws governing asset protection, however, are complex and the consequences of poor planning may be both civil and criminal penalties. Anyone contemplating an asset protection plan should not undertake such without the advice of legal counsel. The protection afforded to the business’ accounts receivable through the ling of the form UCC-1 is affected by both federal and state law. The determination of  what protection is afforded to those accounts receivable for both the business and the third party lender should be made solely by their legal counsel. The protection afforded to the accounts receivable through the ling of UCC-1 does not perfect the third-party lender’s claim in that property if there has been a fraudulent conveyance of the accounts receivable pledged.

2 Tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modi ed endowment contract. See IRC Secs. 7702(f)(7)(B), 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits.

3 When a loan is used to purchase a variable life insurance policy, additional lending requirements under Regulation U (12 C.F.R. 220) and Regulation T (12 C.F.R. 221) must be met. Please contact your lender and/or your legal advisors for more information.

4 Split Dollar arrangements may be affected by the Sarbanes-Oxley Act of 2002 which prohibits personal loans by public companies to their directors and executive of officers. Additionally, final split dollar regulations have been adopted by the IRS that may impact the taxation of split dollar arrangements entered into after September 17, 2003 in many circumstances. Please contact your tax and legal advisors for further guidance.

5 In 2011, the maximum benefit that may be provided by a defined benefit plan is $195,000 per year.

6 It is important to emphasize that the amount of plan contribution that can be allocated to the life insurance premium and the amount of death bene t that can be paid out in the event of death are limited under the “incidental death benefit” rules for qualified plans. Additionally, the use of life insurance in a qualified plan must meet certain non-discrimination rules. Participants are urged to discuss these limitations and rules with a qualified plan third-party administrator (TPA) before placing life insurance inside a qualified plan. Experienced qualified plan TPAs can assist participants in selecting an appropriate plan design, as well as offer help, together with the plan’s legal and tax advisors, in navigating the myriad of qualified plan rules and regulations to achieve specific objectives.

7 The client’s tax advisor must determine the value of the life insurance policy for a purchase or distribution from the plan.

8 The split-funded de ned bene t plan may be required to provide de minimus benefits to the rank-and-file employees.

9 A qualified plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). The qualified plan administrator will calculate the amounts that must be contributed to both the 401(k) profit-sharing and denied benefit plans without violating qualified plan non-discrimination rules.

10 While covered by current life insurance protection, each participant must report the current cost of life insurance protection as taxable income each year.

11 The participant will have basis in the policy equal to the cost of current life insurance he or she has incurred. This basis may reduce the value of the policy for the purposes of a sale or distribution from the qualified plan.

12 The amount of life insurance protection that may be offered in the qualified plan is limited by the incident death benefit rule.

13 In order to use life insurance as the informal funding vehicle for the plan, the insured should be a 5% or more shareholder, a director of the business or a highly compensated employee as denied in either IRC Sec. 416(q) or IRC Sec. 105(h)(5). Prior to issuance of the life insurance policy, the business must provide written notice to the insured that it intends to be the owner and beneficiary of a life insurance policy on the insured’s life and may choose to continue the coverage beyond the executive’s employment. The business must also notify the insured as to the maximum amount of life insurance that could be purchased on the executive’s life. The insured must give written consent to such life insurance coverage.

14 The business may continue to maintain death benefit coverage on the business owner even after a life-time buyout.

15 The remaining owners of a C-Corporation will not receive an increase in basis in the business. Deceased shareholder’s estate may receive a step-up in basis in business interest within six months of death, which may reduce or eliminate capital gains exposure.

16 Because of the fringe benefit rules, more than 2% owners of pass-through entities (e.g. S-Corporation and LLCs) cannot participate in a Section 79 Plan.

17 Benefits must be offered to employees other than the business owner. Depending on the size of the business, it is possible that the benefits must be offered to all of the business’ employees.

18 In order for the cost of the first $50,000 of death bene t coverage to be excluded from income taxation for key employees and owners, the plan must meet non-discrimination rules with respect to eligibility and benefits. If the death benefit coverage exceeds $50,000, the employee must include in income the value of the excess death benefit (economic bene t cost) as determined using the IRS Table I rates, which establishes uniform premiums based on 5-year age brackets.

19 Most SERPs are subject to the requirements of IRC Section 409A. Failure to meet the requirements of IRC Section 409A will result in substantial tax-penalties for the executive/participants.

20 The executive’s SERP account balance will be subject to employment taxes (FICA and FUTA) when the plan is no longer subject to a substantial risk of forfeiture (i.e. vested).

21 The qualified plan administrator will calculate the amounts that must be contributed to both the 401(k) pro t-sharing and denied benefit plans without violating qualified plan non-discrimination rules. A qualified plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

22 Note that the life insurance policy is not the plan; it is merely an informal funding vehicle utilized by the business to accumulate the funds necessary to pay the benefits due under the plan. Prior to issuance of the life insurance policy, the business must provide written notice to the executive that it intends to be the owner and beneficiary of a life insurance policy on the executive’s life and may choose to continue the coverage beyond the executive’s employment. The business must also notify the executive as to the maximum amount of life insurance that could be purchased on the executive’s life. The executive must give written consent to such life insurance coverage. In order to use life insurance as the informal funding vehicle for the plan, the executive should be a 5% or more shareholder, a director of the business, or a highly compensated employee as de ned in either IRC Sec. 416(q) or IRC Sec. 105(h)(5).

23 A Voluntary Deferral Plan is subject to the requirements of IRC Section 409A. Failure to meet the requirements of IRC Section 409A will result in substantial tax penalties for the executive/ participant.

24 If the voluntary deferral plan provides a survivor bene t, the executive’s voluntary deferral plan account balance will be included in his or her taxable estate. The executive’s deferral into the voluntary deferral plan will be subject to employment taxes (FICA and FUTA).

25 A 401(k) Mirror is subject to the requirements of IRC Section 409A. Failure to meet the requirements of IRC Section 409A will result in substantial tax penalties for the executive/participant.

26 Please consult with your employee benefits legal counsel as to whether this is an employee bene t plan under the Employee Retirement Income Security Act of 1974 (ERISA) and, if so, whether any additional requirements are necessary to comply with ERISA.

27 Universal life insurance generally requires additional premium payments after the initial premium. If either no premiums are paid, or subsequent premiums are insufficient to continue coverage, it is possible that coverage will expire. 

28 The deductibility of the bonus is subject to the reasonable compensation limits established by IRC Sec. 162(a).

Disclaimer

  1. The information provided here is for informational purposes only.

  2. The actual terms of an insurance policy and related law prevail over the information provided here. 

  3. In the case of a dispute, the insurance policy is controlling and a court of law will rely on the policy as it is written to resolve the dispute.

  4. The policy is the only document that describes what the insurance company will pay.

  5. The information contained here does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.

  6. This information is not intended to be a substitute for the actual insurance policy.

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