Here at MBK and Associates Inc. we seek to help professionals and individuals better understand the many intricacies and benefits that you may not know about life insurance. With decades of experience working in the insurance industry, we understand life insurance of yesterday, today and tomorrow. One great benefit that business owners NEED to know about right now is Corporate Sponsored Group Life Insurance. Let’s break down what it is and why business owners should know more about it.
How Does It Work?
This play of the playbook can be found at the MBK Beat Case Example Series on our podcast… Watch now to learn more!
These plans are a great way to help incentivize key employees with significant income tax and retirement benefits. Eligible employers, orders of C corporations can establish these plans. There are permissible strategies available, but typically eligibility rules are established in order to be covered. Usually these are full-time employees who work more than 30 hours a week and have 3 full years of service.
2 Care Classes are allowed, executives and administrative are eligible separate classifications. These would be labeled class 1 and class 2 respectively.
Class 1
These participants receive a permanent benefit based on a formula isn’t insurance benefit it is a multiple of their salary. This calculation is usually reverse engineered based on a target cost the corporation is trying to achieve.
Class 2
These employees are offered this same permanent benefit as well as two turn benefits. The employer would pay these, however, the imputed tax costs must be covered by the employee. As a rule, most employees elect not to take the benefit which has an out of pocket cost.
The default for most class 2 employees is $50,000 of nontaxable group term life insurance.
The plan is fully funded after 5 years, fully vested with the employee from Day 1.
At retirement, the policy pays out a tax-free income for life.
To see an example of how corporate sponsored group life insurance works… head over to the MBK Beat Podcast Case Example series to see Mark break down exactly what it looks like!
If you or someone you know is a good candidate to look at Corporate Sponsored Group Life Insurance, please reach out via our contact form or give us a phone call. We look forward to meeting you!