"CARVING" OUT Employee Benefits

For many small business owners, group term life insurance is a popular employee benefit because it is relatively inexpensive, especially when a company has many younger, lower-paid employees. In addition to low cost, the premiums for $50,000 of group term life insurance coverage are fully deductible to the company. Often, this can be a win-win situation for both employer and employee.

However, what happens when older, more highly paid executives are thrown into the mix? In such cases, costs can dramatically rise because term insurance premiums are higher for older individuals. Also, if a group life insurance benefit is based on multiples of income, this can further increase the employer’s cost because only the first $50,000 of coverage is fully deductible.

Today, rising group insurance costs and limited deductibility place many small business owners in a precarious situation. If a company forgoes group term coverage, it risks losing key employees to competitors. At the same time, a company may not be able to justify the increasing expenses and its inability to take a full deduction. Fortunately, business owners have a choice.

Executive group carve out is a useful benefit strategy that allows employers to control the costs of a group term life insurance plan, receive full deductibility for expenses, and maintain their company’s competitive and recruiting edge. Here’s how it works.

Group term insurance coverage for older, highly paid employees that exceeds $50,000 is "carved out" of the existing plan. In return for the "carved out" portion of term insurance coverage, these employees are given a permanent, cash value life insurance policy. The employee owns the new cash value life insurance policy. The employer provides the employee with a bonus, which is used to pay policy premiums.

There are several key advantages that executive group carve out provides for both the employer and the employees:

1. The bonus to the employee is fully deductible to the employer.
2. In most cases, the premiums on the cash value policy will generally remain level. The only cost increases for the employer are those from the $50,000 term insurance portion of the group coverage.
3. Because the employee owns the cash value life insurance, its benefits will not cease at retirement. As long as premium obligations are met, the policy can provide lifelong death benefit protection and cash values that the employee can use to supplement a variety of financial needs.
4. Employee/owners can also reap the benefits of executive group carve out.

In today’s highly competitive business world, it is important for businesses to be creative, yet cost-effective, with the benefits they offer. If a business currently offers group term insurance coverage, it may be worthwhile to explore how an executive group carve out plan may benefit both employees and the business. Your financial representative can help you analyze and determine what is best for your particular situation.

The articles and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your representative, attorney, or accountant with regard to your individual situation.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification:

The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article supports the promotion and marketing of life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.

Insurance & Annuities offered by Metropolitan Life Insurance Company, 200 Park Avenue, New York, NY 10166 Mutual Funds and other securities offered through MetLife Securities Inc., 200 Park Avenue, New York, NY 10166.