Executive Compensation Consultant for Corporate Boards, Executives and Compensation Committees for corporate responsibility.

I specialize in one specific area of executive compensation planning – life insurance. In this area of executive compensation consulting I can add value to any Board or Committee. My practice is fee-based analysis of life insurance policies, the use of life insurance inside of tax-advantaged benefit strategies, and complex transactions.

I’m designated by the California Department of Insurance as a Life Insurance Analyst. As such, I’m proficient and qualified to advise clients on costs, benefits, funding strategies, and all features of life insurance policies. I’ve been admitted in many Courts as a life insurance expert and have been vetted by attorneys and judges.

How I can bring value to your Board is by analyzing the life insurance strategies and policies necessary to best satisfy the obligations of corporate Executive Compensation plans.

In my professional experience of some 25+ years I’ve repeatedly observed that most consumers get their understanding of life insurance from sales agents attempting to earn a commission – their only allowable form of compensation (an agent cannot charge a fee for life insurance consulting, only an Analyst can). Some agents have only a limited understanding of the products they sell and fail to disclose the features of policies that lend to proper life insurance planning solutions. Here I share an example.

Many buyers assume that a policy’s premium is the policy’s cost. While this may be a proper assumption for other types of insurances, it’s not a proper assumption when measuring a policy’s cost for life insurance. I demonstrate here with the following chart which compares an equivalent policy (standard, male, age 50, non-smoker, $1 million), issued by 6 different insurers. Even though the annual ‘Cost of Insurance’ is comparable for all (except insurer #5), the Additional Fees are significantly different.

Cost of Insurance
Insurer #1 #2 #3 #4 #5 #6
Year 5 $4,756 $4,868 $4,816 $4,868 $1,458 $4,856
Year 10 $7,844 $8,100 $8,059 $8,110 $2,700 $8,086
Year 15 $13,693 $14,005 $13,898 $14,005 $4,375 $13,932
Year 20 $21,898 $22,160 $21,918 $22,160 $8,082 $21,977
Year 25 $36,141 $36,796 $36,162 $36,786 $16,085 $36,291
Addl Fees $3,600 $28,600 $3,400 $17,700 $5,000 $8,300

What is of import here is that each of the 6 different policies can be funded with essentially the same annual premium. The following chart demonstrates the recommended premium for each corresponding policy (the same policies demonstrated in chart 1). The undisclosed fees are nearly invisible when the premium is the only measure used to determine the cost of the coverage.

Premium comparison:
Insurer #1 #2 #3 #4 #5 #6
Annual Prem. $10,857 $10,447 $10,857 $10,447 $10,476 $10,829

 

A proper and comprehensive life insurance analysis must go beyond premium. It must evaluate; the cost to guarantee the policy’s benefit for the time-period the corporation is responsible, the risk of the policy lapsing prior to satisfying the corporation’s obligation, and the cost for these two features. In short, why buy a life insurance policy that fails to provide the protection the corporate compensation package is liable for?

If the corporation is paying (large) premiums for a policy that will become significantly more expensive in the future, and ultimately lapse before a benefit is paid, then the corporation is wasting its money.

Some of the many tax-advantaged strategies that can include life insurance for executive compensation packages include:

Key Executive Life Insurance

Split Dollar Life Insurance

162 Bonus Plans using Life Insurance

Bank Owned Life Insurance

Corporate Owned Life Insurance

Any structure for executive compensation using life insurance must examine and measure tax benefits, audit risk, future success of completion, pitfalls and possible failure leading to litigation.

Too often life insurance is purchased with an assumption that the premium and death benefit are guaranteed. This is especially true with Variable life insurance and Universal life insurance. Premiums aren’t always guaranteed. And if the premium isn’t guaranteed, then the death benefit won’t be either. For anyone acting as a corporate compensation advisor this should be concerning.

Perhaps the most cost-effective way for a corporation to purchase life insurance is to use a policy with a guaranteed return of the premium to the payor, if the insured does not die. Under this structure not only does the corporation get its premium refunded if the executive; retires, quits, is terminated, or reaches other milestones, the corporation can also carry the future refund as an asset on the balance sheet as an off-set to the current premium expense.

These are examples of the type of life insurance policy analysis and strategy examination that I can offer and the type of work that needs to be done when evaluating compensation packages for corporate executives.

If you’re looking for a life insurance expert for your corporate compensation committee or for an evaluation of a corporate life insurance plan you’re considering, please contact me.