Funds for executive benefit plans through life insurance

In today's competitive business landscape, advisors are playing a crucial role in helping owners and human resource leaders navigate the complex world of executive benefits. By asking probing questions about the irreplaceability of leaders, the loss of executives to competitors, and the maxing out of 401(k)s, they are helping businesses understand the importance of offering attractive benefit packages to retain their top workers.

One area where companies are expanding their offerings is long-term care. Some carriers have introduced a long-term care rider that can be added to any employee-owned policy, providing peace of mind for executives as they plan for their future.

The executive benefits market is growing, and businesses that do not keep up could find themselves at a disadvantage. The marketplace is influenced by changing rules and regulations, such as the Federal Trade Commission's (FTC) effort to ban noncompete agreements. However, the FTC's rule was blocked by a federal judge in 2024, and the case is currently pending before the U.S. Court of Appeals for the Fifth Circuit.

High-income earners often exhaust qualified retirement plans quickly, leading them to seek other tax-advantaged means of building wealth. This has led to a shift in product preferences towards whole life insurance, due to its guaranteed cash value accumulation and guaranteed death benefit.

Riders commonly found in executive benefit plans include a waiver of premium rider, paid-up additions rider, accelerated benefits rider, and an index participation feature rider. Carriers offer GI whole life solutions across a variety of product designs, including regular full pay whole life, limited pay whole life such as ten pay and paid up at 65 whole life, and high early cash value whole life.

The $42 billion executive benefits market presents an opportunity for insurance professionals to team up with experts, move cases across the finish line, and establish long-lasting relationships. Firms like NFP, McGohan Brabender, New City Insurance, and WTW are among the specialized U.S. insurance professionals offering executive benefits solutions.

Executive benefits can be designed to fit the company's objectives and budget, with options like deferred compensation plans, retention bonus plans, and key person plans for employer-owned, and executive bonus plans, restrictive executive bonus plans, and cross purchase buy-sell cases for employee-owned. Coverage for employer-owned plans typically starts with five to nine eligible executives, while employee-owned designs may require 10 or more participants.

Many carriers offer GI coverage based on simple census enrollment, eliminating the need for medical exams. The maximum face amount varies based on policy ownership and the product selected, but obtaining coverage of up to $5 million on a guaranteed issue basis is possible.

The COVID-19 pandemic has led to a shift in executive priorities, with a focus on financial security, long-term wealth creation, and the preservation of family legacies. Properly designed executive benefit plans, most financed through permanent life insurance, can help keep good employees, address the compensation gap, and secure the business in case a key leader quits, is injured, or passes away.

Companies are under increasing pressure to offer creative alternatives to traditional compensation methods to retain executives. A notable example is Moelis & Co., which provided a $25 million bonus to founder Ken Moelis in the form of partnership units to retain him at the helm through 2029.

Insurance professionals can add value by providing customized life insurance solutions that solve critical business problems. Executive benefit programs offer guaranteed issue underwriting, removing traditional barriers and making implementation seamless for businesses. Non-compete agreements are enforceable under existing state laws, and several states have already enacted legislation that restricts or prohibits non-compete agreements.

In conclusion, the executive benefits market is a growing opportunity for businesses and insurance professionals alike. By offering attractive benefit packages and creative compensation methods, companies can retain their top talent and secure their future. Insurance professionals can help by providing customized solutions that meet the unique needs of each business.