By Elizabeth Kusmider, CFP®
Attracting and retaining top executive talent is one of the most consequential challenges a business faces. Salary and equity can get an executive in the door. Benefits that feel meaningful over a career are what keep them there. Life insurance-based executive benefit plans are one of the most effective and underused tools for building that kind of retention.
I am Elizabeth Kusmider, CFP® and independent life insurance broker. I work with business owners to design executive benefit arrangements that serve both the business and the executive. Here is how the major structures work and how to think about which approach fits your situation.
Life insurance has characteristics that make it well-suited for executive benefit planning. Cash value grows tax deferred. Death benefits are generally received income-tax-free. Policy loans are not treated as taxable income. And permanent policies can accumulate significant value over a 20 to 30-year executive career.
These features allow businesses to use life insurance as both a retirement supplement and a retention mechanism. The result is a benefit that is meaningful enough to keep an executive in place during the policy seasons, and valuable enough at retirement to supplement other income.
Split dollar is an arrangement where the premium cost and policy benefits are shared between an employer and an employee. There are two main types: endorsement split dollar and collateral assignment split dollar.
In an endorsement arrangement, the employer owns the policy and endorses specific benefits to the employee, typically the death benefit above the employer's interest. In a collateral assignment arrangement, the employee owns the policy and assigns the employer's premium contributions as a security interest.
Split dollar arrangements have specific tax treatment under IRS regulations that must be followed carefully. The economic benefit of the life insurance protection provided to the executive is generally treated as compensation income each year. Getting this right requires coordination with the business's tax advisor.
A non-qualified deferred compensation plan allows an executive to defer a portion of their compensation to a future date, typically retirement. The business may informally fund this obligation using a life insurance policy. The cash value of the policy serves as a source of funds to pay the deferred compensation when it comes due.
The life insurance in this context is not the benefit itself. It is the funding mechanism. The executive has a contractual promise from the business to pay deferred compensation; the policy helps the business set aside assets to honor that promise without a formal qualified plan.
A Section 162 executive bonus plan is one of the simplest structures. The business pays a bonus to a select executive, which the executive uses to purchase a personal life insurance policy. The business deducts the bonus as compensation. The executive owns the policy and its cash value.
This structure is easy to administer and gives the executive full ownership of the benefit, which is both a feature and a potential limitation from the business's perspective, since the executive can access the policy even after leaving the company. Some plans add a vesting restriction to address this.
Company-owned life insurance is a policy owned by the business on the life of a key employee or executive, with the business as the beneficiary. It is used to informally fund executive benefit obligations and to provide a tax-advantaged asset on the business's balance sheet.
COLI must comply with the IRC Section 101(j) requirements: notice to the insured, written consent, and annual reporting. When structured correctly, the cash value grows tax-deferred on the business's books and the death benefit is received income-tax-free.
The right executive benefit structure depends on several factors: the business's tax position, whether retention is the primary goal or retirement supplementation, how much control the business wants to retain over the benefit, and the executive's own planning needs.
These structures also need to comply with applicable tax and ERISA regulations, which vary depending on how many executives are covered and how the plan is structured. I work with the business's legal and tax advisors to make sure the insurance design supports the plan's goals without creating unintended tax consequences.
If you are a business owner thinking about executive benefit strategies, a planning conversation is the right starting point.
Elizabeth works closely with wealth managers and estate attorneys to bring insurance planning into broader client conversations. We are here to help make that process simple, not stressful. To schedule a planning session or discuss a client situation, reach out to Elizabeth Kusmider, CFP® at info@kusmiderconsulting.com.
As a full-service, independent brokerage based in Houston, Texas and available throughout the U.S., we specialize in aligning insurance solutions with broader financial strategies. We provide expert guidance, unbiased product recommendations, and ongoing policy oversight to ensure your coverage evolves with your needs.
Whether you're reviewing your own protection or advising clients, we’re committed to helping you make informed, confident decisions.
Elizabeth founded Kusmider Consulting with a simple goal: help people make informed insurance decisions without confusion or pressure.
As a Certified Financial Planner™, she brings a planning background to insurance work, focusing on how coverage fits into the broader financial picture, not just policy features.
If you’d like to discuss how a topic applies to your personal or professional situation, we’re happy to talk.
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