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Company Owned Life Insurance May 21, 2009

Posted by shaferfinancial in Finance.
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I have commented on this in the past.  An article in yesterday’s Wall Street Journal [sorry no link, WSJ charges for access to its articles] pointed it out again.  The thrust of the article was that banks own large amounts of life insurance to fund executive compensation obligations.  A company will take out a life insurance policy on their executives, allow the cash to build up in the policy and then upon death get the proceeds tax free, which they use to pay deferred compensation obligations.

Why do they do this?  The tax benefits of life insurance.  Simply put, they recognize this strategy is superior to investing the money in any other financial instrument, including their own stock!

Those tricky bankers using every strategy in the book to pay their executives exorbitant compensation!  But wait, can’t individuals do the same thing?  Well……..yes, like I have been telling you, buying life insurance for retirement income is a smart and financially savvy thing to do.

Stop listening to those buy-and-hold mutual fund salesmen [financial planners] and start looking around at alternatives!

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Comments»

1. Adam Coovadia - May 21, 2009

I happen to have read that article. You’re absolutely right!

2. BawldGuy - May 22, 2009

Thanks for sending me into the long holiday weekend smiling. We tell folks these things in every way we can, don’t we?

Keep slayin’ the dragons, David. Have a great weekend.

3. TJ - May 22, 2009

And…what kind of life insurance do these big companies buy?

shaferfinancial - May 23, 2009

TJ,

By definition it is permanent or cash value life insurance. For banks the cash value is considered TIER 1 capital. In fact for banks that owned life insurance it made up 25% of tier 1 capital. As to the mix; ie fixed rate [EIULs are fixed rate], variable universal, or whole, I have no idea. Remember it is considered an asset for accounting purposes and upon payout is considered income for corporations!


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