What Is An Executive Carve-Out Plan And Does My Business Need It?

As companies grow and prosper, executives who manage the evolution and operations of an organization become incredibly important assets. Companies may go the extra mile to offer supplemental executive benefits to these individuals, in exchange for the immense value and security they add to the work environment.

If your company has some of these one-of-a-kind executives, an executive carve-out plan may be just what you need. Executive carve-out plans are non-qualified plans for highly-compensated individuals, allocating compensation on top of what would already be available to them through the company’s group term life insurance.

What do we know?

When individuals are offered standard group term life insurance by their employer, up to $50,000 of those benefits are untaxed by the government. Benefits of more than $50,000 are considered imputed income and the company pays taxes on the coverage. However, if an executive carve-out plan is initiated, the executive would retain that first $50,000 of group life insurance, in which the employer would take out an individual life insurance policy for additional coverage beyond the first $50,000. This additional policy is only offered to these key individuals; that is, the coverage is carved out.

Why would a company do this?

First, the ability to avoid the additional taxes on imputed income above $50,000 of coverage helps to save on taxes and administration costs for the employer. Meanwhile, the high-value employee receives additional benefits in the form of this insurance coverage that will grow in value over time. When the employees receive this type of executive carve-out plan, they are getting a valuable piece of compensation that they might not be offered elsewhere. With this degree of recognition, these irreplaceable employees are less likely to leave, saving the employer money by retaining these instrumental individuals.

Determining whether an executive carve-out plan makes financial sense for employees at your company depends heavily on your unique circumstances.

Schechner Lifson Corporation can help organizations weigh the costs and benefits of putting an executive carve-out plan in place. Contact us today to see how we can make sense of the world of insurance, providing you with the best and most affordable coverage possible!